<PAGE>
As filed with the Securities and Exchange Commission on December 17, 1996
Registration No. 33-94846
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 6
to
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
SIGNET BANK
(formerly known as Signet Bank/Maryland)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Virginia 6022 54-1088621
(State or other jurisdic- (Primary Standard Industrial (I.R.S. employer
tion of incorporation Classification Code Number) identification number)
or organization)
</TABLE>
7 North Eighth Street
Richmond, Virginia 23219
(804) 747-2000
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
-----------------------
Sara R. Wilson
Executive Vice President, General
Counsel and Corporate Secretary
Signet Bank
7 North Eighth Street
P.O. Box 25970
Richmond, Virginia 23260
(804) 771-7416
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
<TABLE>
<S> <C>
Joseph C. Carter, III, Esq. Daniel M. Rossner, Esq.
McGuire, Woods, Battle & Boothe, L.L.P. Brown & Wood LLP
One James Center, 901 East Cary Street One World Trade Center
Richmond, Virginia 23219 New York, New York 10048
</TABLE>
Approximate date of commencement of proposed sale to the public: As
soon after the effective date of this Registration Statement as market
conditions warrant.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of earlier effective registration statements
for the same offering.[_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered per Unit (1) Offering Price (1) Registration Fee(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes and
Asset Backed Certificates...... $580,420,500 100% $580,420,500 $200,145
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
(2) Previously paid.
-----------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
Signet Bank intends to make an offering of a portion of the securities
registered under this registration statement as permitted by Rule 430A. The form
of prospectus supplement contained herein is for such offering only and will,
when completed, be filed pursuant to Rule 424(b). Prospectus supplements used in
connection with offerings of other securities registered hereunder will include
only the basic prospectus and may be in a different form and contain other
information.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with +
+ the Securities and Exchange Commission. These securities may not be sold nor +
+ may offers to buy be accepted without the delivery of a final Prospectus +
+ Supplement and Prospectus. This Prospectus Supplement and the accompanying +
+ Prospectus shall not constitute an offer to sell or the solicitation of an +
+ offer to buy nor shall there be any sale of these securities in any State +
+ in which such offer, solicitation or sale would be unlawful prior to +
+ registration or qualification under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED DECEMBER 17, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER , 1996
$428,435,000
Signet Student Loan Trust 1996-A
$252,000,000 Floating Rate Class A-1 Asset Backed Notes
$161,439,000 Floating Rate Class A-2 Asset Backed Notes
$14,996,000 Floating Rate Asset Backed Certificates
--------
Signet Bank
Seller and Master Servicer
--------
The Signet Student Loan Trust 1996-A, a statutory Delaware business trust (the
"Trust"), will issue $252,000,000 aggregate principal amount of Floating Rate
Class A-1 Asset Backed Notes (the "Class A-1 Notes"), $161,439,000 aggregate
principal amount of Floating Rate Class A-2 Asset Backed Notes (the "Class A-2
Notes" and, together with the Class A-1 Notes, the "Notes") and $14,996,000
aggregate principal amount of Floating Rate Asset Backed Certificates (the
"Certificates"). The assets of the Trust will include a pool of guaranteed
education loans to students and parents of students purchased by The First
National Bank of Chicago, as eligible lender trustee on behalf of the Trust
(the "Eligible Lender Trustee"), from Signet Bank (the "Seller") (such loans,
together with any Additional Student Loans acquired from the Seller, the
"Financed Student Loans"), collections and other payments with respect to the
Financed Student Loans, and monies on deposit in certain trust accounts
(including the Collection Account, the Reserve Account and the Pre-Funding
Account).
(Continued on following page)
--------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" HEREIN AT PAGE S-21 AND IN THE ACCOMPANYING PROSPECTUS AT PAGE 15.
--------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN, AND THE NOTES REPRESENT
OBLIGATIONS OF, THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF THE SELLER, THE ELIGIBLE LENDER TRUSTEE, THE MASTER SERVICER, THE INDENTURE
TRUSTEE, ANY SUBSERVICER, ANY GUARANTOR OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE NOTES ARE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-TIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PRO-SPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to the Discount and Proceeds to the
Public(1) Commission(2) Seller(1)(3)
------------ ------------- ---------------
<S> <C> <C> <C>
Per Class A-1 Note.........................
Per Class A-2 Note.........................
Per Certificate............................
Total......................................
</TABLE>
(1) Plus accrued interest, if any, from , .
(2) Underwriting discount only applies to $ aggregate principal amount of
Class A-1 Notes, $ aggregate principal amount of Class A-2 Notes and
$ aggregate principal amount of Certificates that are offered by the
Underwriters.
(3) Before deducting offering expenses payable by the Seller, estimated at
$ .
--------
The Notes and the Certificates are offered by the several Underwriters and
Signet Bank, as specified herein, when, as and if issued by the Trust,
delivered and accepted by them and subject to their respective rights to reject
orders in whole or in part. It is expected that delivery of the Notes and the
Certificates in book-entry form will be made through the facilities of The
Depository Trust Company and, in the case of the Notes, Cedel Bank, societe
anonyme, and the Euroclear System on or about , against payment in
immediately available funds.
Credit Suisse First Boston________ Goldman, Sachs & Co._________Signet Bank
The date of this Prospectus Supplement is December , 1996.
<PAGE>
(Continued from preceding page)
The Notes will be collateralized by the assets of the Trust. The interests
of the Certificateholders in the assets of the Trust will be subordinated to
payments of interest and principal due on the Notes to the extent described
herein. After the Closing Date, certain Additional Fundings will be made from
time to time by or on behalf of the Trust, as described herein.
Subject to certain limitations described herein, the per annum rate of
interest for each Interest Period will equal one-month LIBOR (determined as
described herein) plus % with respect to the Class A-1 Notes and one-month
LIBOR plus % with respect to the Class A-2 Notes. Interest on the Notes will
be payable monthly on or about the twenty-fifth day of each month or, if any
such day is not a business day, on the next succeeding business day (each, an
"Interest Payment Date"), commencing January 27, 1997. Principal on the Notes
will be payable quarterly on or about each January 25, April 25, July 25 and
October 25 of each year, commencing on April 25, 1997 (each, a "Distribution
Date"), provided, however, that no principal payments with respect to the
Class A-2 Notes will be made until the Class A-1 Notes are paid in full.
Interest for each Interest Period, at a rate per annum equal, subject to
certain limitations described herein, to one-month LIBOR plus %, on the
Certificates will be distributed on each Interest Payment Date. Principal on
the Certificates will be distributed on each Distribution Date; provided,
however, that no principal payments with respect to the Certificates will be
made until the Class A-2 Notes are paid in full.
The final maturity date for the Class A-1 Notes will be the January 2005
Distribution Date, the final maturity date for the Class A-2 Notes will be the
April 2016 Distribution Date and the final maturity date for the Certificates
will be the July 2017 Distribution Date. However, payment in full of the Notes
and the Certificates could occur other than on such dates as described herein.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the January 2007 Distribution Date
will be offered for sale by the Indenture Trustee, pursuant to the auction
procedures described herein, and the proceeds of any resulting sale will be
applied to redeem any outstanding Notes and retire any Certificates. In
addition, the outstanding Notes will be redeemed and the Certificates will be
repaid on any Distribution Date on which the Seller exercises its option to
purchase the Financed Student Loans, exercisable when the aggregate principal
balance of the Financed Student Loans is reduced to 10% or less of the sum of
the Initial Pool Balance plus the Initial Pre-Funded Amount.
Signet Bank, a Virginia banking corporation ("Signet"), will serve as Master
Servicer and Administrator for the Financed Student Loans. The Financed
Student Loans will include loans guaranteed to the extent described herein by
Texas Guaranteed Student Loan Corporation ("TGSLC"), United Student Aid Funds
("USAF") and Educational Credit Management Corporation ("ECMC") (each of
TGSLC, USAF and ECMC a "Guarantor", and, collectively, the "Guarantors"),
which are in each case reinsured to the extent described herein by the United
States Department of Education (the "Department"). All of the Guarantors are
Federal Guarantors (as defined in the Prospectus).
------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR
THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN
THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE
STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND
THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
periodic unaudited reports containing information concerning the Financed
Student Loans will be prepared by the Administrator and sent on behalf of the
Trust only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Notes and the Certificates. Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Reports to Securityholders" in the
Prospectus. The Trust will file with the Securities and Exchange Commission
(the "Commission") such periodic reports as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Principal Terms" or, to the
extent not defined herein, have the meanings assigned to such terms in the
Prospectus.
Issuer...................... Signet Student Loan Trust 1996-A (the "Trust")
Securities Offered.......... Floating Rate Class A-1 Asset Backed Notes (the
"Class A-1 Notes") in the aggregate principal
amount of $252,000,000, Floating Rate Class A-2
Asset Backed Notes (the "Class A-2 Notes" and,
together with the Class A-1 Notes, the "Notes")
in the aggregate principal amount of $161,439,000
and Floating Rate Asset Backed Certificates (the
"Certificates" and, together with the Notes, the
"Securities") in the aggregate principal amount
of $14,996,000.
Persons acquiring beneficial ownership interests
in the Notes will hold their interests in the
Notes through The Depository Trust Company
("DTC") in the United States or Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System
("Euroclear") in Europe and persons acquiring
beneficial ownership interests in the
Certificates will hold their interests in the
Certificates through DTC. See "Description of the
Securities--Book-Entry Registration" herein.
Seller...................... Signet Bank, a Virginia banking corporation
("Signet"), as seller (the "Seller"). See "The
Seller, the Master Servicer and the Subservicers"
and "Assumption of Signet's Obligations" in the
Prospectus.
Master Servicer............. Signet, as Master Servicer on behalf of the Trust
(the "Master Servicer") pursuant to a Master
Servicing Agreement to be dated as of November 1,
1996 (as amended and supplemented from time to
time, the "Master Servicing Agreement") among the
Trust, the Master Servicer and the Eligible
Lender Trustee. See "The Seller, the Master
Servicer and the Subservicers" in the Prospectus.
Eligible Lender Trustee..... The First National Bank of Chicago, a national
banking association, as trustee under the Trust
Agreement and holder of legal title to the
Financed Student Loans on behalf of the Trust
(the "Eligible Lender Trustee"). See "Formation
of the Trust" herein and "Formation of the
Trusts--Eligible Lender Trustee" in the
Prospectus.
Indenture Trustee........... The Bank of New York, a New York banking
corporation (the "Indenture Trustee"), as trustee
under the Indenture.
Administrator............... Signet, as administrator (the "Administrator") on
behalf of the Trust pursuant to an Administration
Agreement to be dated as of November 1, 1996 (as
amended and supplemented from time to time, the
"Administration Agreement"), among the
Administrator, the Trust and the Indenture
Trustee.
S-3
<PAGE>
The Trust................... The Trust will be established under the laws of
Delaware by (i) a Trust Agreement to be dated as
of November 1, 1996 (as amended and supplemented
from time to time, the "Trust Agreement"), among
the Seller, a newly-organized affiliate of the
Seller which will be formed prior to the Closing
Date (the "Company") and the Eligible Lender
Trustee and (ii) the filing of a certificate of
trust with the Delaware Secretary of State. The
activities of the Trust and the Eligible Lender
Trustee are limited by the terms of the Trust
Agreement to acquiring, owning and managing the
Financed Student Loans and the other assets of
the Trust as described herein, issuing the
Securities, making payments thereon and other
activities related thereto.
Assets of the Trust......... The assets of the Trust will include the
following:
A. Financed Student
Loans....................... The Financed Student Loans will consist of
certain guaranteed education loans to students
and parents of students ("Student Loans") and
will include rights to receive payments made with
respect to such Financed Student Loans and the
proceeds thereof. On or prior to (the
"Closing Date"), the Seller will sell Student
Loans (the "Initial Financed Student Loans")
having an aggregate principal balance plus
accrued interest thereon expected to be
capitalized upon repayment of approximately
$404,590,798.78 (the "Initial Pool Balance") as
of November 1, 1996 (the "Cutoff Date"), to the
Eligible Lender Trustee on behalf of the Trust
pursuant to a Loan Sale Agreement to be dated as
of November 1, 1996 (as amended and supplemented
from time to time, the "Loan Sale Agreement"),
among the Seller, the Trust and the Eligible
Lender Trustee. Following the Cutoff Date, it is
anticipated that, subject to certain conditions
described herein, additional Student Loans (the
"Additional Student Loans," and together with the
Initial Financed Student Loans, the "Financed
Student Loans") will be acquired by the Trust, as
described below.
The Financed Student Loans are guaranteed to the
extent described herein as to the payment of
principal and interest by Texas Guaranteed
Student Loan Corporation ("TGSLC"), United
Student Aid Funds ("USAF") and Educational Credit
Management Corporation ("ECMC") (each of TGSLC,
USAF, and ECMC a "Guarantor", and, collectively,
the "Guarantors"), which are in each case
reinsured to the extent described herein by the
Department. All of the Guarantors are Federal
Guarantors (as defined in the Prospectus).
Financed Student Loans made before October l,
1993 are 100% guaranteed by the applicable
Guarantor, and reinsured against default by the
Department up to 100% of Guarantee Payments.
Financed Student Loans made on or after October
l, 1993 are 98% guaranteed by the applicable
Guarantor, and reinsured against default by the
Department up to a maximum of 98% of Guarantee
Payments. All references herein to the guarantee
and reinsurance coverage with respect to the
Financed Student Loans shall be understood to
mean such 100% guarantee, and 100% maximum
reinsurance coverage, respectively, with
S-4
<PAGE>
respect to Financed Student Loans made before
October l, 1993 and such 98% guarantee and 98%
maximum reinsurance coverage, respectively, with
respect to Financed Student Loans made on or
after October l, 1993. As of the Cutoff Date,
36.01% by principal balance of the Initial
Financed Student Loans were made before October
1, 1993, and 63.99% by principal balance were
made on or after that date.
Certain incentive programs currently or hereafter
made available by the Seller to borrowers may
also be made available by the Master Servicer to
borrowers with Financed Student Loans. Any such
incentive program that effectively reduces
borrower payments on Financed Student Loans and
is not required by the Act will be applicable to
the Financed Student Loans only if and to the
extent that the Master Servicer receives payment
from the Seller in an amount sufficient to offset
such effective yield or principal reductions. See
"Risk Factors--Changes in Repayment Terms of
Financed Student Loans Pursuant to Incentive
Programs" herein.
As of the Cutoff Date, the weighted average
interest rate per annum with respect to the
Initial Financed Student Loans was approximately
8.33% (based on the applicable interest rates as
of the Cutoff Date), the weighted average
remaining term to maturity (exclusive of any
future deferral or forbearance periods and
assuming expected graduation dates and typical
grace periods) of the Initial Financed Student
Loans was approximately 130.43 months and the
weighted average original term to maturity
(exclusive of any future deferral or forbearance
periods) of the Initial Financed Student Loans
was approximately 163.82 months. As of the Cutoff
Date, approximately 5.25% by principal balance of
the Initial Financed Student Loans are guaranteed
by TGSLC, approximately 71.78% by USAF and
approximately 22.97% by ECMC, and all of the
Financed Student Loans are reinsured by the
Department. See "The Financed Student Loan Pool"
herein.
Following the Closing Date, the Eligible Lender
Trustee on behalf of the Trust will be obligated
from time to time, subject to certain conditions
described herein, to purchase from the Seller,
subject to the availability thereof, Federal
Student Loans which (i) are made to a borrower
who is also a borrower under at least one
outstanding Initial Financed Student Loan, (ii)
are made under the same loan program as such
Initial Financed Student Loan and (iii) have the
same Guarantor as such Initial Financed Student
Loan (each a "Serial Loan," and collectively the
"Serial Loans"). Serial Loans will be made at the
discretion and in accordance with usual business
practices of the Seller. Each such purchase of a
Serial Loan will be made by the Eligible Lender
Trustee on behalf of the Trust pursuant to a
transfer agreement (each a "Transfer Agreement")
between the Seller, the Trust and the Eligible
Lender Trustee. During the Funding Period
(described below), each purchase of a Serial Loan
will be funded by means of a transfer from the
Pre-Funding
S-5
<PAGE>
Account, of an amount equal to the principal
balance owed by the applicable borrower thereon
plus accrued interest thereon expected to be
capitalized upon repayment. Following the end of
the Funding Period, such purchases will be funded
by amounts representing collections of principal
on the outstanding Financed Student Loans which
would otherwise have been distributable in
respect of the Principal Distribution Amount for
the related Distribution Date, as described
herein under "Description of the Transfer and
Servicing Agreements--Distributions".
The Eligible Lender Trustee will not be permitted
to purchase from the Seller any Federal
Consolidation Loans (as further described in the
Prospectus under "Federal Family Education Loan
Program--Federal Consolidation Loan Program")
with respect to a Financed Student Loan or
otherwise after the Closing Date. Any Federal
Consolidation Loan made with respect to a
Financed Student Loan after the Closing Date,
whether made by the Seller or another lender,
will result in a prepayment to the Trust of such
Financed Student Loan. See "Description of the
Transfer and Servicing Agreements--Additional
Fundings" herein.
As described under "Federal Family Education Loan
Program" in the Prospectus, during certain
qualifying periods, interest on certain of the
Financed Student Loans is not required to be paid
currently, but instead is added to the
outstanding principal balance of the loan at the
end of the qualifying period. In order to
minimize the possibility that the failure to
receive current interest payments on such loans
during such periods will result in a shortfall in
the amount required to be distributed on the
Securities, amounts on deposit in the Pre-Funding
Account will be deposited into the Collection
Account during the Funding Period in lieu of
current interest payments on such loans as
described herein under "Description of the
Transfer and Servicing Agreements--Additional
Fundings". Following the end of the Funding
Period, the Pre-Funding Account will cease to be
available as a source to fund such interest
payments and thereafter such payments will be
funded by amounts representing collections of
principal on the outstanding Financed Student
Loans which would otherwise have been
distributable in respect of the Principal
Distribution Amount for the related Distribution
Date, as described herein under "Description of
the Transfer and Servicing Agreements--
Distributions".
The application, during the Funding Period, of
amounts in the Pre-Funding Account (i) by the
Eligible Lender Trustee on behalf of the Trust to
purchase Serial Loans and (ii) by the Trust to
make deposits into the Collection Account in lieu
of collections of interest on Financed Student
Loans to the extent such interest is not paid
currently but will be capitalized and added to
the principal balance of the Financed Student
Loans, and the application, after the end of the
Funding Period, of amounts representing
collections of principal on the outstanding
Financed Student Loans (i) by the Eligible Lender
Trustee on behalf of the Trust to purchase Serial
Loans and
S-6
<PAGE>
(ii) by the Trust to make deposits into the
Collection Account in lieu of collections of
interest on Financed Student Loans to the extent
such interest is not paid currently but will be
capitalized and added to the principal balance of
the Financed Student Loans, is referred to herein
as "Additional Fundings".
B. Pre-Funding Account .... During the period (the "Funding Period") from the
Closing Date until the first to occur of (i) the
Distribution Date on which the amount on deposit
in the Pre-Funding Account is less than $100,000,
(ii) an Event of Default occurring under the
Indenture, a Servicer Default occurring under the
Master Servicing Agreement or an Administrator
Default occurring under the Administration
Agreement, (iii) certain events of insolvency
occurring with respect to the Company, or (iv)
the last day of the Collection Period preceding
the January 1999 Distribution Date, an account
will be maintained in the name of the Indenture
Trustee (the "Pre-Funding Account"). The amount
on deposit in the Pre-Funding Account (the "Pre-
Funded Amount") on the Closing Date will equal
$16,552,201.22 (the "Initial Pre-Funded Amount")
which will be deposited out of the net proceeds
of the sale of the Securities and, during the
Funding Period, will be reduced from time to time
by the amount thereof used to make Additional
Fundings in accordance with the Loan Sale
Agreement. The Seller expects that the amount of
Additional Fundings during the Funding Period
will approximate 100% of the initial Pre-Funded
Amount by the last day of the Collection Period
preceding the January 1999 Distribution Date. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be distributed to Noteholders
and the Certificateholders, in the order of
priority set forth herein, as a payment of
principal. See "Description of the Transfer and
Servicing Agreements--Additional Fundings"
herein.
"Collection Period" means each period of three
calendar months from and including the date next
following the end of the preceding Collection
Period (or, with respect to the first Collection
Period, the period beginning on the Cutoff Date
and ending on March 31, 1997).
C. Collection Account ..... The Master Servicer will be required to remit all
collections received with respect to the Financed
Student Loans, and the Eligible Lender Trustee
will be required to remit Interest Subsidy
Payments and Special Allowance Payments it
receives with respect to the Financed Student
Loans, in each case within two business days of
receipt thereof to one or more accounts in the
name of the Indenture Trustee (the "Collection
Account"). If, however, certain conditions
described in the Prospectus are satisfied, such
collections received by the Master Servicer and
the Eligible Lender Trustee will be remitted to
the Administrator, who will not be required to
deposit such amounts into the Collection Account
generally until on or before the business day
preceding each Distribution Date and who, while
it is holding such amounts, will not be required
to segregate such amounts from its other funds.
See "Description of the Transfer
S-7
<PAGE>
and Servicing Agreements--Payments on Student
Loans" in the Prospectus.
Pursuant to the Administration Agreement, the
Administrator will have the power to instruct the
Indenture Trustee to withdraw funds on deposit in
the Collection Account and to apply such funds
(a) on each Interest Payment Date that is not a
Distribution Date, to the following (in the
priority indicated): (i) the Servicing Fee and
all overdue Servicing Fees to the Master
Servicer; (ii) the Administration Fee and all
overdue Administration Fees to the Administrator;
(iii) the Noteholders' Interest Distribution
Amount to the Class A-1 Noteholders and the Class
A-2 Noteholders on a pro rata basis (based on the
ratio of the portion of the Noteholders' Interest
Distribution Amount accrued with respect to each
such class to the Noteholders' Interest
Distribution Amount); and (iv) the
Certificateholders' Interest Distribution Amount
to the Certificateholders and (b) on each
Distribution Date to the following (in the
priority indicated): (i) the Servicing Fee and
all overdue Servicing Fees to the Master
Servicer; (ii) the Administration Fee and all
overdue Administration Fees to the Administrator;
(iii) the Noteholders' Interest Distribution
Amount to the Class A-1 Noteholders and the Class
A-2 Noteholders on a pro rata basis (based on the
ratio of the portion of the Noteholders' Interest
Distribution Amount accrued with respect to each
such Class to the Noteholders' Interest
Distribution Amount); (iv) the
Certificateholders' Interest Distribution Amount
to the Certificateholders; (v) the Noteholders'
Principal Distribution Amount to the Class A-1
Noteholders until the outstanding principal
balance of the Class A-1 Notes is zero and then
to the Class A-2 Noteholders; (vi) on each
Distribution Date on and after which the Notes
are paid in full, the Certificateholders'
Principal Distribution Amount to the
Certificateholders; and (vii) to the Reserve
Account, any remaining amounts after application
of clauses (i) through (vi) above. See
"Description of the Transfer and Servicing
Agreements--Distributions--Distributions from
Collection Account" herein.
D. Reserve Account ........ Pursuant to the Administration Agreement, an
account in the name of the Indenture Trustee (the
"Reserve Account") will be established and
maintained by the Administrator with Signet Trust
Company, an affiliate of the Seller, and will be
an asset of the Trust. The Seller will make an
initial deposit into the Reserve Account on the
Closing Date of cash or Eligible Investments
equal to $6,317,145 (the "Reserve Account Initial
Deposit"). The Reserve Account Initial Deposit
will be augmented on each Distribution Date by
the deposit into the Reserve Account of any
Available Funds for such Distribution Date
remaining after making all distributions required
to be made from Available Funds on such date. See
"Description of the Transfer and Servicing
Agreements--Distributions--Distributions from the
Collection Account" herein.
If the amount on deposit in the Reserve Account
on any Distribution Date (after giving effect to
all deposits thereto or withdrawals made
therefrom in respect of shortfalls in
distributions required to be made from Available
Funds on such Distribution Date) is greater
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<PAGE>
than the Specified Reserve Account Balance for
such Distribution Date, the Administrator will
instruct the Indenture Trustee to distribute the
amount of such excess (the "Reserve Account
Excess") to the following (in the priority
indicated): (i) to the payment of the unpaid
principal amount of the Notes and the
Certificates in the order of priority set forth
herein, until the unpaid principal balance of the
Notes and the Certificates equals the Pool
Balance plus the Pre-Funded Amount as of the
close of business on the last day of the related
Collection Period, (ii) to the Noteholders, the
aggregate unpaid amount of any Noteholders'
Interest LIBOR Carryover, (iii) to the
Certificateholders, the aggregate unpaid amount
of any Certificateholders' Interest LIBOR
Carryover, (iv) if such Distribution Date is on
or subsequent to the January 2007 Distribution
Date and the Pool Balance on such Distribution
Date is equal to 10% or less of the sum of the
Initial Pool Balance plus the Initial Pre-Funded
Amount, to the payment of the unpaid principal
balance of the Notes and Certificates, in the
order of priority set forth herein, and (v) to
the Seller and the Company, 99% and 1%,
respectively, of any such excess after the
payment of clauses (i) through (iv) above, and,
upon such payment to the Seller and the Company,
the Noteholders and the Certificateholders will
not have any rights in, or claims to, such
amounts. As described in clause (i) of this
paragraph, Reserve Account Excess, if any, will
be applied to reduce the aggregate principal
amount of the Notes and Certificates on each
Distribution Date until the Distribution Date on
which such aggregate principal amount no longer
exceeds the sum of the Pool Balance plus the Pre-
Funded Amount as of the close of business on the
last day of the related Collection Period. As of
the Closing Date, the aggregate principal balance
of the Notes and the Certificates will equal
approximately 101.73% of the sum of the Initial
Pool Balance plus the Initial Pre-Funded Amount.
See "Risk Factors--Issuance of Securities in an
Aggregate Principal Balance that Exceeds the
Initial Pool Balance plus the Initial Pre-Funded
Amount" herein. All distributions of principal on
the Notes and the Certificates as described in
clauses (i) and (iv) of this paragraph shall be
allocated to the Class A-1 Notes until the
principal balance of the Class A-1 Notes has been
reduced to zero, then to the Class A-2 Notes
until the principal balance of the Class A-2
Notes has been reduced to zero and then to the
Certificates until the principal balance of the
Certificates has been reduced to zero.
The "Specified Reserve Account Balance" with
respect to any Distribution Date generally will
be equal to the greater of (i) 1.5% of the sum of
the Pool Balance (as hereinafter defined) and the
Pre-Funded Amount as of the close of business on
the last day of the related Collection Period and
(ii) $4,211,430; provided, however, that such
balance will be subject to adjustment in certain
circumstances described herein and in no event
will such balance exceed the sum of the Pool
Balance plus the Pre-Funded Amount. See
"Description of the Transfer and Servicing
Agreements--Credit Enhancement--Reserve Account"
herein and "Description of the Transfer and
Servicing Agreements--Credit and Cash Flow
Enhancement--Reserve Account" in the Prospectus.
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<PAGE>
Amounts on deposit in the Reserve Account will be
available (a) on each Interest Payment Date that
is not a Distribution Date and on each
Distribution Date prior to the January 2000
Distribution Date, to cover any shortfalls (in
the priority indicated) in payments of (i) the
Servicing Fee and all overdue Servicing Fees,
(ii) the Administration Fee and all overdue
Administration Fees, (iii) the Noteholders'
Interest Distribution Amount and (iv) the
Certificateholders' Interest Distribution Amount
and (b) on each Distribution Date on and after
the January 2000 Distribution Date, to cover any
shortfalls (in the priority indicated) in
payments of (i) the Servicing Fee and all overdue
Servicing Fees, (ii) the Administration Fee and
all overdue Administration Fees, (iii) the
Noteholders' Interest Distribution Amount, (iv)
the Certificateholders' Interest Distribution
Amount, (v) the Noteholders' Principal
Distribution Amount and (vi) the
Certificateholders' Principal Distribution Amount
for such Distribution Date in each case for which
Available Funds for such Distribution Date (or
Monthly Available Funds for such Interest Payment
Date) are insufficient to make such payments and
distributions. Amounts on deposit in the Reserve
Account other than certain amounts in excess of
the Specified Reserve Account Balance will not be
available to cover any Noteholders' Interest
LIBOR Carryover or Certificateholders' Interest
LIBOR Carryover. See "Risk Factors--Subordination
of the Certificates" and "Description of the
Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account" herein.
The funding and maintenance of the Reserve
Account is intended to enhance the likelihood of
timely payment to the Noteholders on each
Interest Payment Date of the Noteholders'
Interest Distribution Amount and on each
Distribution Date on and after the January 2000
Distribution Date of the Noteholders'
Distribution Amount and to the Certificateholders
on each Interest Payment Date of the
Certificateholders' Interest Distribution Amount
and on each Distribution Date on and after the
January 2000 Distribution Date of the
Certificateholders' Distribution Amount. In
certain circumstances, however, the Reserve
Account could be depleted and shortfalls in
distributions and resulting losses to the
Noteholders or the Certificateholders could
occur. See "Risk Factors--Limited Assets of the
Trust" and "Description of the Transfer and
Servicing Agreements--Credit Enhancement" herein.
E. The Transfer and
Servicing Agreements .... Under the Loan Sale Agreement, the Seller will
sell the Financed Student Loans to the Trust,
with the Eligible Lender Trustee holding legal
title thereto. Under the Master Servicing
Agreement, the Master Servicer will agree with
the Trust to be responsible for servicing,
managing, maintaining custody of and making
collections on the Financed Student Loans.
Subject to the terms and conditions described
herein and in the Master Servicing Agreement, the
Master Servicer may delegate certain of its
obligations under the Master Servicing Agreement
to one or more subservicers but no such
delegation shall relieve the Master Servicer from
its responsibilities
S-10
<PAGE>
to service the Financed Student Loans as if it
alone were servicing the Financed Student Loans.
See "The Seller, the Master Servicer and the
Subservicers" and "Description of Transfer and
Servicing Agreements--Servicing Procedures" in
the Prospectus and "The Financed Student Loan
Pool" herein. The obligations of the Seller and
the Master Servicer under the Loan Sale Agreement
and the Master Servicing Agreement include the
following:
Under the Loan Sale Agreement, the Seller will be
obligated to repurchase and, under the Master
Servicing Agreement, the Master Servicer will be
obligated to purchase, any Financed Student Loan
if the interests of the Noteholders or the
Certificateholders therein are materially and
adversely affected by a breach of any
representation, warranty or covenant (including
the Master Servicer's covenant to service all the
Financed Student Loans in accordance with
applicable laws, restrictions and guidelines)
made by the Seller or the Master Servicer, as the
case may be, with respect to the Financed Student
Loan, if the breach has not been cured within 120
days following the discovery by or notice to the
Seller or the Master Servicer, as the case may
be, of the breach (it being understood that any
such breach that does not affect any Guarantor's
obligation to guarantee payment of such Financed
Student Loan will not be considered to have a
material adverse effect for this purpose). In
addition, the Seller and Master Servicer,
respectively, will be obligated to reimburse the
Trust with respect to a Financed Student Loan for
any accrued interest amounts not guaranteed by a
Guarantor due to, or any lost Interest Subsidy
Payments or Special Allowance Payments as a
result of, a breach of the Seller's or the Master
Servicer's respective representations and
warranties with respect to such Financed Student
Loan.
The Master Servicer will receive a monthly fee
(the "Servicing Fee") with respect to each
Financed Student Loan payable on each Interest
Payment Date. The Servicing Fee for any Interest
Payment Date is equal to one-twelfth of the
product of (i) 1.25% per annum and (ii) the Pool
Balance as of the last day of the preceding
Collection Period. The Servicing Fee will be
payable from (i) in the case of each Interest
Payment Date that is not a Distribution Date,
Monthly Available Funds and (ii) in the case of
each Distribution Date, Available Funds, in each
case on deposit in the Collection Account and
from amounts on deposit in the Reserve Account on
each Interest Payment Date.
Pursuant to the Administration Agreement, the
Administrator will agree with the Trust to be
responsible for, among other things, preparing
and filing with the Department all appropriate
claims forms and other documents and filings on
behalf of the Eligible Lender Trustee in order to
claim the Interest Subsidy Payments and Special
Allowance Payments from the Department in respect
of the Financed Student Loans entitled thereto
and preparing and providing
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<PAGE>
monthly, quarterly and annual statements to the
Eligible Lender Trustee and the Indenture Trustee
with respect to distributions to Noteholders and
Certificateholders.
As compensation for the performance of the
Administrator's obligations under the
Administration Agreement and as reimbursement for
its expenses related thereto, the Administrator
will be entitled to receive a monthly
administration fee (the "Administration Fee")
payable as provided herein on each Interest
Payment Date. The Administration Fee for any
Interest Payment Date is equal to one-twelfth of
the product of (i) 0.04% per annum and (ii) the
Pool Balance as of the last day of the preceding
Collection Period. The Administration Fee will be
payable from (i) in the case of each Interest
Payment Date that is not a Distribution Date,
Monthly Available Funds and (ii) in the case of
each Distribution Date, Available Funds, in each
case on deposit in the Collection Account and
from amounts on deposit in the Reserve Account on
each Interest Payment Date.
The Securities.............. The Securities will consist of the Class A-1
Notes, the Class A-2 Notes and the Certificates.
As described more fully herein, the investment
characteristics of the Notes and Certificates
will differ in significant respects as will the
investment characteristics of the Class A-1 Notes
and the Class A-2 Notes. See "Risk Factors--
Certain Differences Between the Class A-1 Notes,
the Class A-2 Notes and the Certificates" herein.
Such differing characteristics will be due
primarily, in the case of the Certificates as
compared to the Notes, to the subordination of
the interests of the Certificateholders in the
assets of the Trust to payments of interest and
principal on the Notes to the extent described
herein, and in the case of the Class A-2 Notes as
compared to the Class A-1 Notes, to the fact that
no principal payments will be made on the Class
A-2 Notes until the principal amount of the Class
A-1 Notes has been paid in full. See "Description
of the Transfer and Servicing Agreements--Credit
Enhancement" herein. In addition, the rate at
which interest accrues on the Certificates based
on the Certificate LIBOR Rate exceeds the Note
Interest Rate and the Class A-2 LIBOR Rate
exceeds the Class A-1 LIBOR Rate. See
"Description of the Securities--the Notes" and
"--the Certificates" herein.
I. The Notes .............. The Trust will issue the Notes pursuant to an
indenture to be dated as of November 1, 1996 (as
amended and supplemented from time to time, the
"Indenture"), between the Trust and the Indenture
Trustee. The Notes will be secured by the assets
of the Trust.
A. Interest ...............Except as described in the following paragraph,
each of the Class A-1 Notes and the Class A-2
Notes will bear interest at the respective rates
per annum (the "Class A-1 Rate" or the "Class A-2
Rate" and, collectively, the "Note Interest
Rates"), equal to one-month LIBOR for such
Interest Period (determined as described
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<PAGE>
herein) plus % in the case of Class A-1 Notes
(the "Class A-1 LIBOR Rate"), and %, in the
case of Class A-2 Notes (the "Class A-2 LIBOR
Rate"); See "Description of the Securities--
Determination of LIBOR" herein. Interest on the
outstanding principal amount of the Notes will
accrue from the Closing Date or from the most
recent Interest Payment Date on which interest
has been paid to but excluding the following
Interest Payment Date (each an "Interest Period")
and will be payable on the twenty-fifth day of
each month (or, if any such date is not a
business day, on the next succeeding business
day) (each, an "Interest Payment Date"),
commencing January 27, 1997, to holders of record
of the Class A-1 Notes (the "Class A-1
Noteholders") and holders of record of the Class
A-2 Notes (the "Class A-2 Noteholders" and,
together with the Class A-1 Noteholders, the
"Noteholders") as of the related Record Date.
"Record Date" means, with respect to any Interest
Payment Date or Distribution Date, the twenty-
fourth day of the month in which such Interest
Payment Date or Distribution Date, as the case
may be, occurs. Interest will be calculated on
the basis of the actual number of days elapsed in
each Interest Period divided by 360. See
"Description of the Securities".
Notwithstanding the foregoing, if either Note
Interest Rate for any such Interest Period
calculated on the basis of LIBOR is greater than
the Student Loan Rate, then such Note Interest
Rate for such Interest Payment Date will be the
Student Loan Rate. The "Student Loan Rate" for
any Interest Period will equal the product of (a)
the quotient obtained by dividing (i) 360 by (ii)
the actual number of days elapsed in such
Interest Period and (b) the percentage equivalent
of a fraction, (i) the numerator of which is
equal to Expected Interest Collections for such
Interest Period less the Servicing Fee and the
Administration Fee with respect to such Interest
Period, and (ii) the denominator of which is the
outstanding principal balance of the Securities
as of the first day of such Interest Period
(after, if the first day of such Interest Period
is a Distribution Date, giving effect to any
principal distributions on the Securities on such
Distribution Date). "Expected Interest
Collections" means, with respect to any Interest
Period, the sum of (i) the amount of interest
accrued, net of any Monthly Rebate Fees (as
described under "Risk Factors--Fees Payable on
Certain Financed Student Loans Prior to
Distributions on the Securities" herein) and
other amounts required by the Act to be paid to
the Department or to be repaid to borrowers, with
respect to the Financed Student Loans for the
calendar month preceding the related Interest
Payment Date (the "Student Loan Rate Accrual
Period") whether or not such interest is actually
paid, (ii) all Interest Subsidy Payments and
Special Allowance Payments estimated to have
accrued for such Student Loan Rate Accrual
Period, whether or not actually received and
(iii) Investment Earnings (as defined in
"Description of the Transfer and Servicing
Agreements--Accounts" in the Prospectus) for such
Student Loan Rate Accrual Period.
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<PAGE>
If the Class A-1 Rate or the Class A-2 Rate for
any Interest Payment Date is based on the Student
Loan Rate, the excess of (a) the amount of
interest on the Class A-1 Notes or the Class A-2
Notes, as the case may be, that would have
accrued in respect of the related Interest Period
had interest been calculated based on LIBOR over
(b) the amount of interest on the Class A-1 Notes
or the Class A-2 Notes, as the case may be,
actually accrued in respect of such Interest
Period based on the Student Loan Rate will be
paid on the Distribution Date immediately
following such Interest Payment Date (or, if such
Interest Payment Date is a Distribution Date, on
such Distribution Date) or on any subsequent
Distribution Date out of the Reserve Account
Excess, if any, for such Distribution Date after
making all required prior distributions of such
excess as described herein under "Description of
the Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account". Such excess,
together with the unpaid portion of any such
excess from prior Interest Payment Dates, and
interest accrued thereon calculated based on the
Class A-1 LIBOR Rate or the Class A-2 LIBOR Rate,
as applicable, is collectively referred to as the
"Noteholders' Interest LIBOR Carryover". See
"Description of the Transfer and Servicing
Agreements--Distributions". The rating of the
Notes does not address the likelihood of the
payment of any Noteholders' Interest LIBOR
Carryover. See "--Rating of the Securities".
On each Interest Payment Date, the Eligible
Lender Trustee will distribute pro rata to the
holders of record of Notes as of the preceding
Record Date interest at the applicable Note
Interest Rates on the outstanding principal
balance of the Notes on the immediately preceding
Distribution Date, after giving effect to all
distributions of principal to Noteholders on such
preceding Distribution Date (or, in the case of
the first Distribution Date, on the Closing
Date). See "Description of the Transfer and
Servicing Agreements--Statements to Indenture
Trustee and Trust" in the Prospectus.
B. Principal ........... Principal of the Notes will be payable on each
Distribution Date in an amount equal to the
Noteholders' Principal Distribution Amount for
such Distribution Date. The Noteholders'
Principal Distribution Amount generally will be
equal to the amount of principal paid or, in
certain cases, due to be paid with respect to the
Financed Student Loans (including any realized
losses thereon) during the related Collection
Period less, if such Collection Period is after
the end of the Funding Period, the sum of (i) any
such amount applied by the Eligible Lender
Trustee on behalf of the Trust during such
Collection Period to purchase Serial Loans, as
described herein, and (ii) accrued and unpaid
interest on the Financed Student Loans for such
Collection Period to the extent such interest
will be capitalized and added to the principal
balance of such Financed Student Loans, upon the
commencement of repayment of such Financed
Student
S-14
<PAGE>
Loans, as described herein. See "Description of
the Transfer and Servicing Agreements--
Distributions" herein.
In addition, on each Distribution Date, the
Reserve Account Excess, if any, for such
Distribution Date will be applied, as described
herein, to the unpaid principal balance of the
Notes in the order of priority set forth herein
until the unpaid principal balance of the Notes
and the Certificates no longer exceeds the sum of
the Pool Balance plus the Pre-Funded Amount as of
the close of business on the last day of the
related Collection Period. See "Description of
the Transfer and Servicing Agreements--Credit
Enhancement-- Reserve Account" herein. Also, on
each Distribution Date on or after the January
2007 Distribution Date, if the Pool Balance on
such Distribution Date is less than 10% of the
sum of the Initial Pool Balance plus the Initial
Pre-Funded Amount, any Reserve Account Excess
remaining after payment of certain amounts as
described in "Description of the Transfer and
Servicing Agreements--Credit Enhancement--Reserve
Account," will be applied to prepay the unpaid
principal balance of the Notes, in the order of
priority set forth herein.
The aggregate amount distributable as principal
on the Notes will be applied on each Distribution
Date, first, to the principal balance of the
Class A-1 Notes until such principal balance is
reduced to zero and then to the principal balance
of the Class A-2 Notes until such principal
balance is reduced to zero.
The outstanding principal amount, if any, of the
Class A-1 Notes will be payable in full on the
January 2005 Distribution Date (the "Class A-1
Final Maturity Date") and the outstanding
principal amount, if any, of the Class A-2 Notes
will be payable in full on the April 2016
Distribution Date (the "Class A-2 Final Maturity
Date"). However, the actual maturity of the Notes
could occur other than on such dates as a result
of a variety of factors. See "Risk Factors--Yield
and Prepayment Considerations" herein.
C. Mandatory
Redemption ............. If any amount remains on deposit in the Pre-
Funding Account on the last day of the Funding
Period after giving effect to all Additional
Fundings to be made on or prior to such date,
such amount will be used on the Distribution Date
on or immediately following such date to redeem
the Class A-1 Notes up to an amount not to exceed
their outstanding principal balance and then to
redeem the Class A-2 Notes. The aggregate
principal amount of Notes to be redeemed will be
an amount equal to the amount then on deposit in
the Pre-Funding Account.
II. The Certificates ....... Concurrently with the issuance of the Notes, the
Trust will issue the Certificates pursuant to the
Trust Agreement. The Certificates represent
undivided participation interests in the Trust. A
portion of the Certificates will be held by the
Company and the remaining
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<PAGE>
Certificates will be sold to third-party
investors that are expected to be unaffiliated
with the Seller, the Master Servicer, the
Guarantors or the Department. The initial
principal balance of the Certificates will equal
$14,996,000. See "Formation of the Trust--The
Trust" herein.
A. Interest .......... Except as described in the following paragraph,
interest on the Certificates will accrue for each
Interest Period at a rate per annum (the
"Certificate Rate") equal to one-month LIBOR for
such Interest Period (determined as described
herein) plus % (the "Certificate LIBOR Rate").
See "Description of the Securities--Determination
of LIBOR". Interest will be calculated on the
basis of the actual number of days elapsed in
each Interest Period divided by 360.
Notwithstanding the foregoing, if the Certificate
Rate for such Interest Period calculated on the
basis of the Certificate LIBOR Rate is greater
than the Student Loan Rate, then the Certificate
Rate for such Interest Payment Date will be the
Student Loan Rate. If the Certificate Rate for
any Interest Payment Date is based on the Student
Loan Rate, the excess of (a) the amount of
interest on the Certificates that would have
accrued in respect of the related Interest Period
had interest been calculated based on LIBOR over
(b) the amount of interest on the Certificates
actually accrued in respect of such Interest
Period based on the Student Loan Rate will be
paid on the Distribution Date immediately
following such Interest Payment Date (or, if such
Interest Payment Date is a Distribution Date, on
such Distribution Date) or on any subsequent
Distribution Date out of the Reserve Account
Excess, if any, for such Distribution Date after
making all required prior distributions of such
excess, which prior distributions include, as
described herein under "Description of the
Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account," the payment of any
outstanding Noteholders' Interest LIBOR
Carryover. Such excess, together with the unpaid
portion of any such excess from prior Interest
Payment Dates (and interest accrued thereon
calculated based on the Certificate LIBOR Rate),
is collectively referred to as the
"Certificateholders' Interest LIBOR Carryover".
See "Description of the Transfer and Servicing
Agreements--Distributions". The rating of the
Certificates does not address the likelihood of
the payment of any Certificateholders' Interest
LIBOR Carryover. See "--Rating of the Securities"
herein.
On each Interest Payment Date, the Eligible
Lender Trustee will distribute pro rata to the
holders of record of Certificates (the
"Certificateholders" and, together with the
Noteholders, the "Securityholders") as of the
preceding Record Date interest at the Certificate
Rate on the Certificate Balance on the
immediately preceding Distribution Date, after
giving effect to all distributions of principal
to Certificateholders on such preceding
Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date).
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<PAGE>
B. Principal ........... Principal of the Certificates will be payable on
each Distribution Date on and after which the
Notes have been paid in full in an amount
generally equal to (a) the amount of principal
paid with respect to the Financed Student Loans
(including any realized losses thereon) during
the related Collection Period less, if such
Collection Period is after the end of the Funding
Period, the sum of (i) any such amount applied by
the Eligible Lender Trustee on behalf of the
Trust during such Collection Period to purchase
Serial Loans, as described herein, and (ii)
accrued and unpaid interest on the Financed
Student Loans for such Collection Period to the
extent such interest will be capitalized and
added to the principal balance of such Financed
Student Loans upon the commencement of repayment
of such Financed Student Loans, as described
herein under "Description of the Transfer and
Servicing Agreements--Distributions" and (b) any
Reserve Account Excess distributable to
Certificateholders as described under
"Description of the Transfer and Servicing
Agreements--Credit Enhancement--Reserve Account"
herein.
On each Distribution Date on or after the January
2007 Distribution Date, if the Pool Balance on
such Distribution Date is less than 10% of the
sum of the Initial Pool Balance plus the Initial
Pre-Funded Amount and so long as the Notes have
been paid in full, any Reserve Account Excess
remaining after payment of certain amounts as
described in "Description of the Transfer and
Servicing Agreements--Credit Enhancement--Reserve
Account," will be applied to the unpaid principal
balance of the Certificates until the principal
balance of the Certificates has been reduced to
zero.
The outstanding principal amount of the
Certificates will be payable in full on the July
2017 Distribution Date (the "Final Maturity
Date"). However, the actual maturity of the
Certificates could occur other than on such date
as a result of a variety of factors. See "The
Risk Factors--Yield and Prepayment
Considerations" herein.
C. Subordination of
the Certificates ....... The interests of Certificateholders in the assets
of the Trust will be subordinated to payments of
interest and principal due on the Notes to the
extent described herein. This subordination is
intended to enhance the likelihood of regular
receipt by the holders of Notes of the full
amount of scheduled payments of principal and
interest due them and to protect them against
losses. See "Risk Factors--Subordination of the
Certificates" and "Description of the Transfer
and Servicing Agreements--Credit Enhancement--
Subordination of the Certificates" herein.
Auction of Trust Assets .... Any Financed Student Loans remaining in the Trust
as of the end of the Collection Period
immediately preceding the January 2007
Distribution Date will be offered for sale by the
Indenture Trustee. The Seller, its affiliates and
unrelated third parties may offer bids to
purchase such Financed Student Loans on such
Distribution Date. If
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<PAGE>
at least two bids are received, the Indenture
Trustee will accept the highest bid equal to or
in excess of the greater of (x) the Purchase
Amounts of such Financed Student Loans as of the
end of the Collection Period immediately
preceding such Distribution Date or (y) an amount
that would be sufficient to (i) reduce the
outstanding principal amount of each class of
Notes then outstanding on such Distribution Date
to zero, (ii) pay to the Noteholders the
Noteholders' Interest Distribution Amount payable
on such Distribution Date, if any, (iii) reduce
the Certificate Balance of the Certificates on
such Distribution Date to zero, (iv) pay to the
Certificateholders the Certificateholders'
Interest Distribution Amount payable on such
Distribution Date, (v) pay the Noteholders the
then outstanding Noteholders' Interest LIBOR
Carryover, if any, and (vi) pay the
Certificateholders the then outstanding
Certificateholders' Interest LIBOR Carryover, if
any (the "Minimum Purchase Price"). If at least
two bids are not received or the highest bid is
not equal to or in excess of the Minimum Purchase
Price, the Indenture Trustee will not consummate
such sale. The proceeds of any such sale will be
used first to redeem any outstanding Class A-1
Notes, second to redeem any outstanding Class A-2
Notes and third to retire any outstanding
Certificates on such Distribution Date. If the
sale is not consummated in accordance with the
foregoing, the Indenture Trustee may, but shall
not be under any obligation to, solicit bids for
sale of the Financed Student Loans on future
Distribution Dates upon terms similar to those
described above. No assurance can be given as to
whether the Indenture Trustee will be successful
in soliciting acceptable bids to purchase the
Financed Student Loans on either the January 2007
Distribution Date or any subsequent Distribution
Date. See "Description of the Transfer and
Servicing Agreements--Termination" herein.
Optional Purchase .......... The Seller may repurchase all remaining Financed
Student Loans, and thus effect the early
retirement of the Notes and the Certificates, on
any Distribution Date on or after which the Pool
Balance is equal to 10% or less of the sum of the
Initial Pool Balance plus the Initial Pre-Funded
Amount, at a price equal to the Minimum Purchase
Price for such Financed Student Loans as of the
end of the preceding Collection Period. See
"Description of the Transfer and Servicing
Agreements--Termination" herein, and "Description
of the Transfer and Servicing Agreements--
Termination--Optional Redemption" in the
Prospectus.
The "Pool Balance" at any time represents the
aggregate principal balance of the Financed
Student Loans at the end of the preceding
Collection Period (including accrued interest
thereon through the end of such Collection Period
to the extent such interest will be capitalized
upon commencement of repayment), after giving
effect to the following, without duplication: (i)
all payments received by the Trust during such
Collection Period from or on behalf of borrowers,
Guarantors and, with respect to certain payments
on
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certain Financed Student Loans, the Department
(collectively, "Obligors"), (ii) all Purchase
Amounts received by the Trust for such Collection
Period from the Seller or the Master Servicer,
(iii) all Additional Fundings made with respect
to such Collection Period and (iv) all losses
realized on Financed Student Loans liquidated
during such Collection Period.
"Purchase Amount" with respect to a Financed
Student Loan means (i) the unpaid principal
balance owed by the applicable borrower thereon
plus accrued interest thereon to the date of
purchase plus (ii) if the outstanding principal
balance of the Notes and the Certificates is
greater than the Pool Balance plus the Pre-Funded
Amount, an amount equal to the product of (a)
1.73% and (b) the sum of the unpaid principal
balance of such loan plus the accrued interest to
be capitalized, if any.
Tax Considerations ......... Although there is no specific authority with
respect to the characterization for federal or
Maryland income tax purposes of securities having
the same terms as the Notes, in the opinion of
McGuire, Woods, Battle & Boothe, L.L.P., special
federal and state tax counsel for the Trust ("Tax
Counsel"), the Notes will be characterized as
debt for federal income tax purposes and for
Maryland state income tax purposes.
In the opinion of Tax Counsel for the Trust, for
federal income tax purposes the Trust will not be
characterized as an association (or publicly
traded partnership) taxable as a corporation. The
Certificateholders, the Seller and the Company,
as owner of all amounts not otherwise required to
be distributed to Noteholders or
Certificateholders or to pay expenses of the
Trust, will agree to treat the Trust as a
partnership in which they are partners.
Alternative characterizations are possible, but
would not result in materially adverse federal
income tax consequences to Certificateholders. In
the opinion of Tax Counsel for the Trust, the
same characterizations would apply for Maryland
state income tax purposes as for federal income
tax purposes. However, there are no cases or
rulings on similar transactions involving a trust
that issues debt and equity interests with terms
similar to those of the Notes and the
Certificates.
Due to the method of allocation of Trust income
to the Certificateholders, cash basis holders
may, in effect, be required to report income from
the Certificates on an accrual basis. In
addition, because tax allocations and tax
reporting will be done on a uniform basis, but
Certificateholders may be purchasing Certificates
at different times and at different prices,
Certificateholders may be required to report on
their tax returns taxable income that is greater
or less than the amount reported to them by the
Trust. Finally, Noteholders and
Certificateholders may be required to accrue any
Noteholders' Interest LIBOR Carryover and
Certificateholders' Interest LIBOR Carryover,
respectively, in income in advance of the
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receipt of cash with respect to such amounts
regardless of whether such Noteholders or
Certificateholders are on the cash or accrual
methods of accounting.
See "Federal Income Tax and State Tax
Consequences" herein and "Federal Income Tax
Consequences" and "State Tax Consequences" in the
Prospectus for additional information concerning
the application of federal and Maryland state tax
laws with respect to the Notes and the
Certificates.
ERISA Considerations ....... Subject to the considerations discussed under
"ERISA Considerations--The Notes" herein and in
the Prospectus, the Notes are eligible for
purchase by employee benefit plans.
The Certificates may not be acquired by any
employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or by any individual
retirement account. See "ERISA Considerations--
The Certificates" herein and in the Prospectus.
Rating of the Securities ... It is a condition to the issuance and sale of the
Notes and the Certificates that the Notes be
rated in the highest investment rating category
by at least two nationally recognized rating
agencies and that the Certificates be rated in
the "A" rating category by at least two such
rating agencies. A rating is not a recommendation
to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by
the assigning rating agency. The rating agencies
do not evaluate, and the ratings of the
Securities do not address, the likelihood of
payment of the Noteholders' Interest LIBOR
Carryover or the Certificateholders' Interest
LIBOR Carryover. There can be no assurance as to
whether any additional rating agency will rate
the Notes or the Certificates, or if one does,
what rating would be assigned by such other
rating agency.
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RISK FACTORS
Prospective purchasers of the Securities should consider, among other
things, the following factors (as well as the factors set forth under "Risk
Factors" in the Prospectus) in connection with an investment therein:
Limited Liquidity of the Securities. The Securities will not be listed on
any national securities exchange. There is currently no secondary market for
the Securities. The Underwriters intend to make a market in the Securities but
have no obligation to do so. Neither Signet nor any affiliate of Signet will
make a market in the Securities. There can be no assurance that a secondary
market will develop or, if a secondary market does develop, that it will
provide the Securityholders with liquidity of investment or that it will
continue for the life of the Securities. As a result, investors must be
prepared to bear the risk of holding the Securities for as long as the
Securities are outstanding.
Subordination of the Certificates. The rights of Certificateholders to
receive payments of interest are subordinated to the rights of the Noteholders
to receive payments of interest and the rights of the Certificateholders to
receive payments of principal are subordinated to the rights of the
Noteholders to receive payments of interest and principal. Consequently,
Monthly Available Funds or Available Funds, as the case may be, on deposit in
the Collection Account and the Reserve Account on (i) any Interest Payment
Date will be applied to the payment of interest on the Notes before payment of
interest on the Certificates and (ii) any Interest Payment Date that is also a
Distribution Date, will be applied to the payment of interest on the Notes
before payment of interest and principal on the Certificates and will be
applied to the payment on the Notes of the Noteholders' Principal Distribution
Amount before payment of principal on the Certificates. If amounts otherwise
allocable to the Certificates are used to fund payments of principal and
interest on the Notes, distributions with respect to the Certificates may be
delayed or reduced and Certificateholders may suffer a loss. Notwithstanding
the foregoing, distributions to Certificateholders of amounts representing the
Certificateholders' Distribution Amount will not be subordinated to the
payment of any Noteholders' Interest LIBOR Carryover that may exist from time
to time or to the payment, in the order specified herein, of principal on the
Notes or in respect of the Certificates out of the Reserve Account Excess to
the extent that the aggregate unpaid principal balance of the Notes and the
Certificates exceeds the sum of the Pool Balance and the Pre-Funded Amount as
of the last day of the related Collection Period or to the extent otherwise
required on or after the January 2007 Distribution Date. See "Description of
the Transfer and Servicing Agreements--Credit Enhancement--Reserve Account".
The Certificateholders bear directly the credit and other risks associated
with an undivided interest in the Trust. See "Description of the Transfer and
Servicing Agreements--Distributions" and "--Credit Enhancement--Subordination
of the Certificates" herein.
Limited Assets of the Trust. The Trust does not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Financed Student Loans (and the related Guarantee Agreements), the Collection
Account, the Pre-Funding Account and the Reserve Account. The Notes represent
obligations solely of the Trust, and the Certificates represent interests
solely in the Trust and its assets, and neither the Notes nor the Certificates
will be insured or guaranteed by the Seller, the Master Servicer, any
subservicer, the Guarantors, the Eligible Lender Trustee, the Indenture
Trustee, the Department or any affiliate thereof. Consequently, holders of the
Notes and the Certificates must rely for repayment upon payments with respect
to the Financed Student Loans and, to the extent available under the
circumstances described herein, amounts on deposit in the Pre-Funding Account
and the Reserve Account. The Pre-Funding Account will only be available during
the Funding Period to cover obligations of the Trust relating to Additional
Fundings and is not intended to cover losses on the Financed Student Loans.
Similarly, amounts to be deposited in the Reserve Account are limited in
amount and will be reduced, subject to a specified minimum, as the Pool
Balance is reduced. In addition, as a general matter, funds in the Reserve
Account will first be made available to cover shortfalls in distributions of
interest on the Notes before covering shortfalls in distributions of interest
or principal on the Certificates and to cover shortfalls in distributions of
principal on the Notes before covering shortfalls of principal on the
Certificates. If the Reserve Account is exhausted, the Trust will depend
solely on payments with respect to the Financed Student Loans to make payments
on the Notes and distributions on the Certificates. Consequently, if payments
with respect to the Financed Student Loans are insufficient to make the
required
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payments on the Notes and distributions on the Certificates, the Noteholders
and Certificateholders could suffer a loss. Noteholders and Certificateholders
will have no claim to any amounts properly distributed to the Seller or the
Master Servicer from time to time as described herein and in the Prospectus
and the Seller and the Master Servicer shall in no event be required to refund
such distributed amounts. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Credit Enhancement" herein.
Issuance of the Securities in an Aggregate Principal Balance that Exceeds
the Initial Pool Balance plus the Initial Pre-Funded Amount. As of the Closing
Date, the aggregate principal balance of the Notes and Certificates will be
equal to approximately 101.73% of the sum of the Initial Pool Balance plus the
Initial Pre-Funded Amount. As a result, Noteholders and Certificateholders
will be reliant on the availability of Reserve Account Excess to bring the
aggregate principal balance of the Notes and the Certificates into parity with
the Pool Balance and the Pre-Funded Amount. The availability of Reserve
Account Excess will in turn generally be dependent on (a) Available Funds for
any Distribution Date being in excess of the amount necessary to pay (i) the
Servicing Fee and all prior unpaid Servicing Fees, (ii) the Administration Fee
and all prior unpaid Administration Fees, (iii) the Noteholders' Interest
Distribution Amount, (iv) the Certificateholders' Interest Distribution
Amount, (v) the Noteholders' Principal Distribution Amount and (vi) on each
Distribution Date on and after which the Notes have been paid in full, the
Certificateholders' Principal Distribution Amount for such Distribution Date;
and/or (b) declines in the Specified Reserve Account Balance that exceed any
amounts required to be withdrawn for any Distribution Date from the Reserve
Account to make up shortfalls required to be paid therefrom. At such time as
the aggregate principal balance of the Notes and the Certificates has been
reduced so that it equals the Pool Balance plus the Pre-Funded Amount, any
Reserve Account Excess will not be available to pay principal of the Notes or
the Certificates until, under certain circumstances, on or after the January
2007 Distribution Date. See "Description of the Transfer and Servicing
Agreements--Credit Enhancement--Reserve Account" herein.
To the extent that Noteholders and the Certificateholders are reliant on
excess interest collections on the Financed Student Loans to repay a portion
of the principal balance of the Notes and the Certificates, Noteholders and
Certificateholders could be adversely affected by an increase in the rate of
prepayments on the Financed Student Loans or an increase in LIBOR, since
either such increase would diminish the amount of such excess interest that
would subsequently be available to pay such principal. In addition, payments
on the Notes and the Certificates may be more sensitive to rates of default on
the Financed Student Loans than would be the case were the principal balance
of the Notes and the Certificates not issued in an amount in excess of the sum
of the Initial Pool Balance plus the Initial Pre-Funded Amount, particularly
with respect to those Financed Student Loans first disbursed on or after
October 1, 1993 which are 98% insured by a Guarantor (rather than 100% so
insured as is the case for such loans first disbursed prior to such date).
Furthermore, if an Event of Default under the Indenture or an Insolvency Event
with respect to the Company should occur and the Financed Student Loans were
liquidated at a time when the outstanding principal of the Notes and the
Certificates exceeded the aggregate principal balance of the Financed Student
Loans, unless such Financed Student Loans are liquidated at a premium,
Noteholders and Certificateholders may suffer a loss as a result thereof.
Yield Considerations Related to the Pre-Funding Account. On the Closing
Date, the Eligible Lender Trustee on behalf of the Trust will own the
approximately $404,590,798.78 outstanding principal amount of Financed Student
Loans plus accrued interest thereon expected to be capitalized upon repayment
and the $16,552,201.22 Pre-Funded Amount on deposit in the Pre-Funding
Account. If the sum of (i) the principal amount of Serial Loans available to
be acquired from the Seller during the Funding Period and (ii) the amount of
interest on the Financed Student Loans capitalized and not paid currently by
or on behalf of the borrowers during the Funding Period is less than the Pre-
Funded Amount, the Trust will have insufficient opportunities to make
Additional Fundings during the Funding Period, thereby resulting in a
prepayment of principal to Noteholders as described in the following
paragraph.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to Additional Fundings by the Trust by the end of the
Funding Period, the Noteholders will receive as a prepayment of principal, on
the Distribution Date on or following the last day in the Funding Period, an
amount equal to the Pre-Funded Amount remaining in the Pre-Funding Account
following any Additional Fundings on the last day
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in the Funding Period, in the order of priority set forth herein. It is
anticipated that the amount of Additional Fundings made by the Trust will not
be exactly equal to the amount on deposit in the Pre-Funding Account and that
therefore there will be at least a nominal amount of principal prepaid to the
Noteholders. Such prepayments may have the effect of reducing the yield on the
Notes.
Changes in Characteristics of the Financed Student Loan Pool Due to
Additional Fundings. Except for the criteria described under the "The Financed
Student Loan Pool", there will be no other required characteristics of the
Additional Student Loans. Therefore, upon the transfer of the Additional
Student Loans to the Eligible Lender Trustee on behalf of the Trust, the
aggregate characteristics of the entire pool of Financed Student Loans,
including the distribution by loan type, the distribution by interest rate,
the distribution by principal balance and the distribution by remaining term
to scheduled maturity may vary from those of the Initial Financed Student
Loans as of the Cutoff Date. See "The Financed Student Loan Pool" herein.
Yield and Prepayment Considerations. The rate of payment of principal of the
Notes and the Certificates and the yield on the Notes and the Certificates is
uncertain and will be affected by prepayments of the Financed Student Loans
that may occur as described below. All the Financed Student Loans are
prepayable in whole or in part by the borrowers at any time (including by
means of Federal Consolidation Loans as discussed below) or as a result of a
borrower default, death, disability or bankruptcy, or school closure or false
certification and subsequent liquidation or collection of Guarantee Payments
with respect thereto. The rate of such prepayments cannot be predicted and may
be influenced by a variety of economic, social and other factors, including as
described below. In general, the rate of prepayments may tend to increase to
the extent that alternative financing becomes available at prevailing interest
rates which fall significantly below the interest rates applicable to the
Financed Student Loans. However, because all of the Financed Student Loans
bear interest at a rate that either actually or effectively is floating, it is
impossible to determine whether changes in prevailing interest rates will be
similar to or vary from changes in the interest rates on the Financed Student
Loans. To the extent borrowers of Financed Student Loans elect to borrow
Federal Consolidation Loans, whether from the Seller or another lender, such
Financed Student Loans will be prepaid. Any such prepayment will result in a
principal prepayment on the Securities. See "Federal Family Education Loan
Program--Federal Consolidation Loan Program" in the Prospectus.
The rate of principal payments on the Notes and the Certificates, the amount
of principal and interest payments on the Notes and the Certificates and the
yield to maturity of the Notes and the Certificates will be directly related
to the rate of payment of principal on the Financed Student Loans. The timing
of changes and the rate of prepayments may significantly affect an investor's
actual yield to maturity, even if the average rate of principal prepayments is
consistent with an investor's expectations. In general, the earlier a
prepayment of principal of a Financed Student Loan, the greater the effect on
an investor's yield to maturity. The effect on an investor's yield as a result
of principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Notes and the Certificates will not be offset by a subsequent
equivalent reduction (or increase) in the rate of principal prepayments. See
"Weighted Average Life of the Securities" in the Prospectus.
In administering the Federal Direct Consolidation Loan Program (See "Federal
Family Education Loan Program--Legislative and Administrative Matters" in the
Prospectus), the Department has indicated that it will permit borrowers with
Federal Student Loans to consolidate their outstanding student loans at
interest rates below those which would apply if they consolidated their
outstanding student loans by means of a Federal Consolidation Loan under the
Federal Consolidation Loan Program. The availability of such lower-rate
consolidation loans may increase the likelihood that a Financed Student Loan
will be prepaid. Any such prepayment will result in a principal prepayment on
the Securities. See "Risk Factors--Yield and Prepayment Considerations" in the
Prospectus regarding the Federal Direct Consolidation Loan Program.
Furthermore, the Seller is obligated to repurchase any Financed Student Loan
pursuant to the Loan Sale Agreement as a result of a breach of any of its
representations and warranties, and the Master Servicer is obligated to
purchase any Financed Student Loan pursuant to the Master Servicing Agreement
as a result of a breach of certain covenants with respect to such Financed
Student Loan, in each case where such breach materially and adversely affects
the
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interests of the Certificateholders or the Noteholders in that Financed
Student Loan and is not cured within the applicable cure period (it being
understood that any such breach that does not affect any Guarantor's
obligation to guarantee payment of such Financed Student Loan will not be
considered to have a material adverse effect for this purpose). Any such
purchase or repurchase will result in a principal prepayment on the
Securities. See "Description of the Transfer and Servicing Agreements--Sale of
Student Loans; Representations and Warranties" and "--Servicer Covenants" in
the Prospectus. See also "Description of the Transfer and Servicing
Agreements--Termination", regarding the Seller's option to purchase the
Financed Student Loans when the aggregate Pool Balance is less than or equal
to 10% of the Initial Pool Balance plus the Initial Pre-Funded Amount, and
"Description of the Transfer and Servicing Agreements--Insolvency Event"
regarding the sale of Financed Student Loans if a Company Insolvency Event
occurs.
On the other hand, scheduled payments with respect to, and maturities of,
the Financed Student Loans may be extended, including pursuant to Grace
Periods, Deferral Periods and Forbearance Periods or as a result of the
conveyance of Serial Loans to the Eligible Lender Trustee on behalf of the
Trust during or after the Funding Period as described herein. In that event,
the fact that such Serial Loans will have varying maturities and, after the
termination of the Funding Period, will be purchased with principal
distributions on the Financed Student Loans which may otherwise have been
applied to amortize the Notes or the Certificates may lengthen the remaining
term of the Financed Student Loans and the average life of the Notes and the
Certificates. In addition, such Serial Loans may have, and certain of the
Initial Financed Student Loans have, stated maturities which occur after the
Final Maturity Date. The application, after the end of the Funding Period, of
amounts which would otherwise have been distributable in respect of the
Principal Distribution Amount for a related Distribution Date to make interest
distributions to Noteholders and Certificateholders in lieu of collections of
interest on certain Financed Student Loans on which interest is not currently
required to be paid will also have the effect of lengthening the average life
of the Notes and Certificates over what it would have been had such amounts
been applied to amortize the Notes and the Certificates.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the January 2007 Distribution Date
will be offered for sale by the Indenture Trustee. If acceptable bids to
purchase such Financed Student Loans on such Distribution Date are received,
as described herein, the proceeds of the sale will be applied on such
Distribution Date to redeem any outstanding Notes and to retire any
outstanding Certificates on such date. In addition, if acceptable bids to
purchase such Financed Student Loans on such Distribution Date are not
received, the sale of such Financed Student Loans may occur on a subsequent
Distribution Date, as described herein, and applied on such date to redeem any
outstanding Notes and retire any outstanding Certificates. No assurance can be
given as to whether the Indenture Trustee will be successful in soliciting
acceptable bids to purchase the Financed Student Loans on the January 2007
Distribution Date or any subsequent Distribution Date. See "Description of the
Transfer and Servicing Agreements--Termination" herein.
In addition, if the sale of Financed Student Loans is not consummated in
accordance with the foregoing, on each Distribution Date on and after the
January 2007 Distribution Date if the Pool Balance is equal to 10% or less of
the sum of the Initial Pool Balance plus the Initial Pre-Funded Amount, the
Reserve Account Excess, if any, remaining after the payment of any
Noteholders' Interest LIBOR Carryover and Certificateholders' Interest LIBOR
Carryover with respect to such Distribution Date will be distributed to the
Noteholders and Certificateholders in the order of priority described herein
as payments of principal which will have the effect of accelerating the
amortization the Notes and the Certificates.
The rate of payment of principal of the Notes and the Certificates and the
yield on the Notes and the Certificates may also be affected by the rate of
defaults resulting in losses on Liquidated Student Loans, by the severity of
those losses and by the timing of those losses, which may affect the ability
of the Guarantors to make Guarantee Payments with respect thereto. The rate,
severity or timing of defaults or the ability of the Guarantor to make
guarantee payments on the Financed Student Loans cannot be predicted.
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Financed Student Loans will be borne entirely by the
Securityholders. Such reinvestment risks may include the risk that interest
rates and
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the relevant spreads above particular interest rate bases are lower at the
time Securityholders receive payments from the Trust than such interest rates
and such spreads would otherwise have been had such prepayments not been made
or had such prepayments been made at a different time. The yield on the Notes
and Certificates may also be reduced by the discharge of any Noteholders'
Interest LIBOR Carryover and Certificateholders' Interest LIBOR Carryover
remaining after distribution of all Available Funds on the respective final
maturity date of the Notes and Certificates.
Holders of Notes or Certificates should consider, in the case of Notes or
Certificates, as the case may be, purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Financed Student
Loans could result in an actual yield that is less than the anticipated yield
and, in the case of Notes or Certificates, as the case may be, purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
the Financed Student Loans could result in an actual yield that is less than
the anticipated yield.
Certain Differences Between the Class A-1 Notes, the Class A-2 Notes and the
Certificates. Because the Class A-2 Noteholders will receive no payments of
principal until the Class A-1 Notes have been paid in full and the
Certificateholders will receive no payments of principal until the Class A-2
Notes have been paid in full, the Class A-1 Notes and, to a lesser extent, the
Class A-2 Notes bear relatively greater risk than do the Certificates of an
increased rate of principal repayments with respect to the Financed Student
Loans (whether as a result of voluntary prepayments or liquidations due to
default or breach). In addition, the Class A-1 Noteholders generally bear the
risk of principal prepayments as a result of any remaining Pre-Funded Amount
at the end of the Funding Period. On the other hand, Certificateholders, and
to a lesser extent Class A-2 Noteholders, bear a greater risk of loss of
principal than do Class A-1 Noteholders in the event of a shortfall in
Available Funds and amounts on deposit in the Reserve Account because the
Certificates do not receive principal distributions until the Class A-2 Notes
are paid in full and the Class A-2 Notes do not receive principal payments
until the Class A-1 Notes are paid in full.
Basis Risk. Each Note Interest Rate and the Certificate Rate are generally
based on one-month LIBOR and are calculated based on the actual number of days
elapsed in each Interest Period divided by 360. The Seller cannot make any
representation as to what rate one-month LIBOR may be at any time in the
future. Financed Student Loans, however, generally bear interest at an
effective rate (taking into account any Special Allowance Payments) equal to
the average bond equivalent rates of 91-day Treasury bills auctioned for each
quarter (or, in certain circumstances, 52-week Treasury bills) plus margins
specified for such Financed Student Loans under "Federal Family Education Loan
Program" in the Prospectus calculated on the basis of the actual number of
days since the last day through which interest on such Financed Student Loan
was paid in full and the actual number of days in the year. The Class A-1
LIBOR Rate, the Class A-2 LIBOR Rate and the Certificate LIBOR Rate may not
increase or decrease at the same time or at the same rate as the Student Loan
Rate. As a result, if in respect of any Interest Payment Date the Student Loan
Rate has not increased as fast as the respective Note or Certificate Rate, and
consequently there does not exist a positive spread between (a) the Student
Loan Rate and (b) the applicable Note Interest Rate or the Certificate Rate
based on the Class A-1 LIBOR Rate, the Class A-2 LIBOR Rate or the Certificate
LIBOR Rate, as the case may be, the applicable Note Interest Rate or the
Certificate Rate, as applicable, for such Interest Payment Date will be the
Student Loan Rate. See "Description of the Securities--The Notes--
Distributions of Interest" and "--The Certificates--Distributions of Interest"
herein. Any Noteholders' Interest LIBOR Carryover or Certificateholders'
Interest LIBOR Carryover arising as a result of the applicable Note Interest
Rate or the Certificate Rate being determined on the basis of the Student Loan
Rate will be paid on the Distribution Date immediately following such Interest
Payment Date (or, if such Interest Payment Date is a Distribution Date, on
such Distribution Date) or on any succeeding Distribution Date out of the
Reserve Account Excess, if any, for such Distribution Date after making any
required distributions out of such excess in respect of principal payments on
the Notes or Certificates. In addition, under no circumstances will any
amounts be distributed in respect of Noteholders' Interest LIBOR Carryover or
Certificateholders' Interest LIBOR Carryover until such time as the aggregate
principal amount of the Notes and Certificates no longer exceeds the sum of
the Pool Balance plus the Pre-Funded Amount as of the last day of the related
Collection Period. Payment of such amounts will not be covered, in the case of
the Notes, by subordination of
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distributions of the Certificateholders' Distribution Amount in respect of the
Certificates (although distributions of any Certificateholders' Interest LIBOR
Carryover will be subordinated to payment of any Noteholders' Interest LIBOR
Carryover). See "Description of the Transfer and Servicing Agreements--
Distributions" herein.
Fees Payable on Certain Financed Student Loans Prior to Distributions on the
Securities. Under the Federal Consolidation Program, the Trust will be
obligated to pay to the Department a monthly rebate fee (the "Monthly Rebate
Fee") at an annualized rate of 1.05% of the outstanding principal balance on
the last day of each month plus accrued interest thereon of each Federal
Consolidation Loan which is a part of the Trust, which rebate will be payable
prior to distributions to the Noteholders or the Certificateholders and which
rebate will reduce the amount of funds which would otherwise be available to
make distributions on the Securities and will reduce the Student Loan Rate.
Limited Nature of Ratings of the Securities. It is a condition to the
issuance and sale of each class of the Notes and of the Certificates that the
Notes be rated in the highest investment rating category by at least two
rating agencies and that the Certificates be rated in the "A" rating category
by at least two rating agencies. A rating is not a recommendation to purchase,
hold or sell Securities, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings of the Securities
address the likelihood of the ultimate payment of principal of and timely
payment of interest on the Securities pursuant to their terms. However, the
rating agencies do not evaluate, and the ratings of the Securities do not
address, the likelihood of payment of the Noteholders' Interest LIBOR
Carryover or the Certificateholders' Interest LIBOR Carryover. There can be no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a rating agency if in its
judgment circumstances in the future so warrant. There can be no assurance as
to whether any additional rating agency will rate the Notes or the
Certificates, or if one does, what rating would be assigned by such other
rating agency. A downgrade or withdrawal of a rating on the Notes or the
Certificates may limit their liquidity or may negatively impact the price a
holder of either Security would receive upon its sale.
Changes in Repayment Terms of Financed Student Loans Pursuant to Incentive
Programs. The Seller currently makes available and may hereafter make
available certain incentive programs to borrowers. Under these programs, the
Seller retains the option to terminate or change the terms of the incentives
with respect to any or all of the borrower's loans, including loans originated
prior to the termination or change which have been or will be assigned to the
Trust. It cannot be predicted with certainty which borrowers will qualify or
decide to participate in these programs.
The effect of these incentive programs may be to reduce the yield and
scheduled principal payments on the Initial Financed Student Loans or on
Student Loans which may be added to the Trust through Additional Fundings. If
any such incentive program does reduce the yield or the scheduled principal
payments on the affected Financed Student Loan and is not required by the Act,
such program will be applicable to Financed Student Loans in the Trust only if
and to the extent that the Trust receives payment from the Seller in an amount
sufficient to offset such yield and principal reductions. To the extent that
the Master Servicer makes such benefits available to borrowers with Financed
Student Loans, the effect of such benefits may be faster amortization of
principal of the affected Financed Student Loans.
Geographic Concentration. Approximately 26.19% and 26.79% by principal
balance of the Initial Financed Student Loans have borrowers with permanent
billing addresses located in either Virginia or Maryland, respectively.
Consequently, a material deterioration in general economic conditions in those
states could result in an increased level of defaults from such borrowers
requiring increased default claims to be paid by the Guarantors. In such
circumstances, Securityholders could experience delays in receiving payments.
See "The Financed Student Loan Pool--Guarantee of Financed Student Loans."
FORMATION OF THE TRUST
THE TRUST
Signet Student Loan Trust 1996-A will be a statutory Delaware business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described herein and in the Prospectus and a certificate
of trust filed with the Delaware Secretary of State. The Trust will not engage
in any activity other than (i) acquiring, holding and managing the Financed
Student Loans and the other assets of the Trust and proceeds therefrom, (ii)
issuing the Certificates and the Notes, (iii) making payments thereon, (iv)
purchasing Serial Loans and (v) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
S-26
<PAGE>
The Trust will be initially capitalized with equity of $14,996,000
(excluding amounts deposited in the Reserve Account by the Seller on the
Closing Date) representing the initial principal balance of the Certificates.
Certificates with an initial principal balance of approximately $150,000 will
be held by the Company. The remaining Certificates will be sold to third-party
investors by the Certificate Underwriters that are expected to be unaffiliated
with the Seller, the Company, the Master Servicer, the Guarantors, and the
Department. The equity of the Trust, together with the proceeds from the sale
of the Notes, will be used by the Eligible Lender Trustee to purchase on
behalf of the Trust the Initial Financed Student Loans from the Seller
pursuant to the Loan Sale Agreement and to fund the deposit of the Pre-Funded
Amount. In addition, the Seller will use a portion of the net proceeds it
receives from the sale of the Initial Financed Student Loans to make the
Reserve Account Initial Deposit. Upon the consummation of such transactions,
the property of the Trust will consist of (a) a pool of Student Loans, legal
title to which is held by the Eligible Lender Trustee on behalf of the Trust,
(b) all funds collected in respect thereof on or after the Cutoff Date and (c)
all moneys and investments on deposit in the Collection Account, the Pre-
Funding Account and the Reserve Account. The Notes will be collateralized by
the property of the Trust. As of the Closing Date, the aggregate principal
balance of the Notes and the Certificates will equal approximately 101.73% of
the sum of the Initial Pool Balance plus the Initial Pre-Funded Amount. The
Collection Account, the Reserve Account and the Pre-Funding Account will be
maintained in the name of the Indenture Trustee for the benefit of the
Noteholders and the Certificateholders. To facilitate servicing and to
minimize administrative burden and expense, the Master Servicer will be
appointed custodian of the promissory notes representing the Financed Student
Loans by the Eligible Lender Trustee.
The Trust will use funds on deposit in the Pre-Funding Account during the
Funding Period to make Additional Fundings, including to acquire Serial Loans
which will constitute property of the Trust. See "Description of the Transfer
and Servicing Agreements--Additional Fundings" herein. In addition, after the
Funding Period, Serial Loans will be added to the Trust to the extent that the
Eligible Lender Trustee on behalf of the Trust purchases such loans from the
Seller. Any such conveyance during or after the Funding Period of such Serial
Loans is conditioned on compliance with the procedures described in the Loan
Sale Agreement. The Seller expects that the amount of Additional Fundings
during the Funding Period will approximate 100% of the Initial Pre-Funded
Amount by the last day of the Collection Period preceding the January 1999
Distribution Date; however, there can be no assurance that a sufficient amount
of Additional Fundings will be made by such date. If the Pre-Funded Amount has
not been reduced to zero by the end of the Funding Period, the Noteholders
will receive any amounts remaining in the Pre-Funding Account as a payment of
principal in the order of priority set forth herein. There can be no assurance
as to the amount of Additional Fundings that will occur after the Funding
Period. See "Description of the Transfer and Servicing Agreements--Additional
Fundings" herein.
The Trust's principal offices are in Chicago, Illinois, in care of The First
National Bank of Chicago, as Eligible Lender Trustee, at the address listed
below.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Securities offered hereby had
taken place on such date:
<TABLE>
<S> <C>
Floating Rate Class A-1 Asset Backed Notes................. $252,000,000
Floating Rate Class A-2 Asset Backed Notes................. 161,439,000
Floating Rate Asset Backed Certificates.................... 14,996,000
------------
Total.................................................... $428,435,000
============
</TABLE>
ELIGIBLE LENDER TRUSTEE
The First National Bank of Chicago is the Eligible Lender Trustee for the
Trust under the Trust Agreement. The First National Bank of Chicago is a
national banking association whose principal offices are located at One
S-27
<PAGE>
First National Plaza, Suite 0126, Chicago, Illinois 60670 and whose New York
offices are located at First Chicago Trust Company of New York, 14 Wall
Street, New York, New York 10005. The Eligible Lender Trustee will acquire on
behalf of the Trust legal title to all the Financed Student Loans acquired
from time to time pursuant to the Loan Sale Agreement. The Eligible Lender
Trustee on behalf of the Trust will enter into a Guarantee Agreement with each
of the Guarantors with respect to such Financed Student Loans. The Eligible
Lender Trustee qualifies as an eligible lender and owner of all Financed
Student Loans for all purposes under the Act and the Guarantee Agreements.
Failure of the Financed Student Loans to be owned by an eligible lender would
result in the loss of any Guarantee Payments from any Guarantor and any
Federal Assistance with respect to such Financed Student Loans. See "The
Student Loan Pools" in the Prospectus. The Eligible Lender Trustee's liability
in connection with the issuance and sale of the Notes and the Certificates is
limited solely to the express obligations of the Eligible Lender Trustee set
forth in the Trust Agreement, the Loan Sale Agreement and the Master Servicing
Agreement. See "Description of the Securities" and "Description of the
Transfer and Servicing Agreements" herein and in the Prospectus. The Seller
and its affiliates may maintain normal commercial banking relations with the
Eligible Lender Trustee.
THE FINANCED STUDENT LOAN POOL
The pool of Financed Student Loans will include the Initial Financed Student
Loans purchased by the Eligible Lender Trustee on behalf of the Trust as of
the Cutoff Date and any Additional Student Loans made or acquired by the
Eligible Lender Trustee on behalf of the Trust after the Closing Date.
The Initial Financed Student Loans were selected from Signet's portfolio of
Student Loans by employing several criteria, including, but limited to, as of
the Cutoff Date, the following: each Initial Financed Student Loan (i) is
guaranteed as to principal and interest by a Guarantor pursuant to a Guarantee
Agreement and the Guarantor is, in turn, reinsured by the Department in
accordance with the Federal Family Education Loan Program (the "FFELP") under
Title IV of the Higher Education Act of 1965, as amended (the "Act"), (ii)
contains terms in accordance with those required by the FFELP, the Guarantor
and other applicable requirements, (iii) is not more than 90 days past due as
of the Cutoff Date, (iv) did not have a borrower who was noted in the records
of the Master Servicer as being currently involved in a bankruptcy proceeding
and (v) is not subject to any obligation by Signet to sell such loan to a
third party.
Following the Closing Date, the Eligible Lender Trustee on behalf of the
Trust will be obligated from time to time to purchase from the Seller, subject
to the availability thereof, Serial Loans owned by the Seller. During the
Funding Period, such purchases will be funded by means of a transfer of
amounts on deposit in the Pre-Funding Account as described herein. Following
the end of the Funding Period, such purchases will be funded by amounts
representing collections of principal on the outstanding Financed Student
Loans which would otherwise have been part of the Available Funds of the
Trust, provided such Serial Loans meet certain criteria described herein. See
"Description of the Transfer and Servicing Agreements--Additional Fundings"
herein.
No selection procedures believed by the Seller to be adverse to the
Securityholders were used or will be used in selecting the Financed Student
Loans. However, except for the criteria described in the preceding paragraphs
and under "Description of the Transfer and Servicing Agreements--Additional
Fundings" herein, there will be no required characteristics of the Serial
Loans. Therefore, following the transfer of Serial Loans to the Eligible
Lender Trustee on behalf of the Trust, the aggregate characteristics of the
entire pool of Financed Student Loans, including the composition of the
Financed Student Loans, the distribution by loan type, the distribution by
interest rate, the distribution by principal balance and the distribution by
remaining term to scheduled maturity described in the following tables, may
vary from those of the Initial Financed Student Loans as of the Cutoff Date.
In addition, the distribution by weighted average interest rate applicable to
the Financed Student Loans on any date following the Cutoff Date may vary from
that set forth in the following tables as a result of variations in the
effective rates of interest applicable to the Financed Student Loans.
Moreover, the information described below with respect to the original term to
maturity and remaining term to maturity of the
S-28
<PAGE>
Initial Financed Student Loans as of the Cutoff Date may vary from the actual
term to maturity of any of the Financed Student Loans as a result of the
granting of deferral and forbearance periods with respect thereto.
Set forth below in the following tables is a description of certain
additional characteristics of the Initial Financed Student Loans as of the
Cutoff Date:
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS
AS OF THE CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance(1).................. $404,590,798.78
Number of Borrowers......................................... 50,613
Average Outstanding Principal Balance Per Borrower.......... $ 7,993.81
Number of Loans............................................. 103,208
Average Outstanding Principal Balance Per Loan.............. $ 3,920.15
Weighted Average Remaining Term to Maturity(2).............. 130.43
Weighted Average Annual Borrower Interest Rate(3)........... 8.33%
</TABLE>
- --------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
(2) Determined from the Cutoff Date to the stated maturity date of the
applicable Initial Financed Student Loan, assuming repayment commences
promptly upon expiration of the typical Grace period following the
expected graduation date and without giving effect to any Deferral or
Forbearance periods that may be granted in the future. See "The Federal
Family Education Loan Program" in the Prospectus.
(3) Determined using the interest rates applicable to the Initial Financed
Student Loans as of the Cutoff Date, excluding Special Allowance Payments.
The weighted average spread, including Special Allowance Payments, to the
91-day or 52-week T-Bill rate, as applicable, was 3.09% as of the Cutoff
Date and would have been 3.13% if all of the Initial Financed Student
Loans were in repayment as of the Cutoff Date. However, because all the
Initial Financed Student Loans effectively bear interest at a variable
rate per annum, there can be no assurance that the foregoing percentage
will remain applicable to the Initial Financed Student Loans at any time
after the Cutoff Date. See "The Federal Family Education Loan Program" in
the Prospectus.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY LOAN TYPE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
LOAN TYPE LOANS PRINCIPAL BALANCE(1) PRINCIPAL BALANCE
--------- --------- -------------------- -----------------
<S> <C> <C> <C>
Consolidation Loans....... 5,763 $100,738,777.17 24.90%
Subsidized Stafford
Loans.................... 70,927 205,513,935.05 50.79
Unsubsidized Stafford
Loans.................... 13,895 49,371,736.36 12.20
SLS Loans................. 6,100 23,488,860.24 5.81
PLUS Loans................ 6,523 25,477,489.96 6.30
------- --------------- ------
Total................... 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
S-29
<PAGE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY INTEREST RATES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
RANGE OF INTEREST NUMBER OUTSTANDING BY OUTSTANDING
RATES(1) OF LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
----------------- -------- -------------------- -----------------
<S> <C> <C> <C>
Less than 7.50%........... 640 $ 4,174,066.02 1.03%
7.50% to 7.99%............ 5,652 23,734,582.86 5.87
8.00% to 8.49%............ 80,177 256,690,861.55 63.44
8.50% to 8.99%............ 12,683 50,408,866.26 12.46
9.00% to 9.49%............ 3,974 68,306,075.31 16.88
Greater than 9.49%........ 82 1,276,346.78 0.32
------- --------------- ------
Total................... 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Determined using the interest rates applicable to the Initial Financed
Student Loans as of the Cutoff Date. However, because all the Initial
Financed Student Loans effectively bear interest as a variable rate per
annum, there can be no assurance that the foregoing information will
remain applicable to the Initial Financed Student Loans at any time after
the Cutoff Date. See "The Federal Family Education Loan Program" in the
Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY OUTSTANDING PRINCIPAL BALANCE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
RANGE OF OUTSTANDING NUMBER OUTSTANDING BY OUTSTANDING
PRINCIPAL BALANCES OF LOANS PRINCIPAL BALANCE(1) PRINCIPAL BALANCE
-------------------- -------- -------------------- -----------------
<S> <C> <C> <C>
Less than $1,000.00....... 10,860 $ 7,154,384.11 1.77%
$ 1,000.00 to $ 1,999.99.. 21,178 31,609,289.69 7.81
$ 2,000.00 to $ 2,999.99.. 26,948 67,585,026.90 16.70
$ 3,000.00 to $ 3,999.99.. 13,178 45,397,356.08 11.22
$ 4,000.00 to $ 4,999.99.. 7,676 34,191,529.34 8.45
$ 5,000.00 to $ 5,999.99.. 9,846 53,560,761.94 13.24
$ 6,000.00 to $ 6,999.99.. 2,579 16,641,416.97 4.11
$ 7,000.00 to $ 7,999.99.. 2,569 19,212,690.88 4.75
$ 8,000.00 to $ 8,999.99.. 2,464 20,821,934.40 5.15
$ 9,000.00 to $ 9,999.99.. 721 6,819,334.45 1.69
$10,000.00 to $10,999.99.. 768 8,087,436.70 2.00
$11,000.00 to $11,999.99.. 701 8,061,068.29 1.99
$12,000.00 to $12,999.99.. 513 6,405,384.04 1.58
$13,000.00 to $13,999.99.. 317 4,274,661.68 1.06
$14,000.00 to $14,999.99.. 290 4,205,194.46 1.04
$15,000.00 and above...... 2,600 70,563,328.85 17.44
------- --------------- ------
Total..................... 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
S-30
<PAGE>
DISTRIBUTION OF THE INITIAL FINANCED
STUDENT LOANS BY SCHOOL TYPE
<TABLE>
<CAPTION>
AGGREGATE
OUTSTANDING PERCENT OF POOL
NUMBER PRINCIPAL BY OUTSTANDING
SCHOOL TYPE OF LOANS BALANCE(1) PRINCIPAL BALANCE
----------- -------- --------------- -----------------
<S> <C> <C> <C>
2-year institutions............... 7,072 $ 18,666,082.07 4.61%
4-year institutions............... 75,863 247,116,089.86 61.08
Consolidation..................... 5,763 100,738,777.17 24.90
Graduate.......................... 1,423 7,199,756.36 1.78
Proprietary/Vocational............ 10,269 20,050,277.21 4.96
Not identified.................... 2,818 10,819,816.11 2.67
------- --------------- ------
Total........................... 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY REMAINING TERM TO
SCHEDULED MATURITY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF MONTHS REMAINING NUMBER OF OUTSTANDING BY OUTSTANDING
TO SCHEDULED MATURITY(1) LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
-------------------------- --------- -------------------- -----------------
<S> <C> <C> <C>
Less than 13................ 573 $ 312,545.40 0.08%
13 to 24.................... 2,946 2,494,103.78 0.62
25 to 36.................... 3,661 4,617,293.29 1.14
37 to 48.................... 3,552 5,762,529.51 1.42
49 to 60.................... 3,495 6,828,300.42 1.69
61 to 72.................... 5,414 12,897,080.39 3.19
73 to 84.................... 6,587 16,084,640.20 3.98
85 to 96.................... 8,301 23,138,948.44 5.72
97 to 108................... 11,728 40,869,916.51 10.10
109 to 120.................. 24,088 88,755,520.77 21.94
121 to 132.................. 22,879 92,677,750.46 22.91
133 to 144.................. 3,591 15,466,451.12 3.82
145 and greater............. 6,393 94,685,718.49 23.39
------- -------------- ------
Total..................... 103,208 404,590,798.78 100.00%
======= ============== ======
</TABLE>
- --------
(1) Determined from the Cutoff Date to the stated maturity date of the
applicable Initial Financed Student Loan, assuming repayment commences
promptly upon expiration of the typical Grace period following the
expected graduation date and without giving effect to any Deferral or
Forbearance periods that may be granted in the future. See "The Federal
Family Education Loan Program" in the Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
S-31
<PAGE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY LOAN PAYMENT STATUS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
LOAN PAYMENT STATUS(1) LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
---------------------- --------- -------------------- -----------------
<S> <C> <C> <C>
In-School................. 3,303 $ 11,128,850.01 2.75%
Grace..................... 16,329 62,772,443.12 15.52
Deferral.................. 12,140 43,787,844.29 10.82
Forbearance............... 8,014 36,622,748.92 9.05
Repayment (3).............
First year in
repayment.............. 29,605 116,472,598.71 28.79
Second year in
repayment.............. 14,671 61,013,522.91 15.08
Third year in
repayment.............. 10,087 48,628,940.31 12.02
More than 3 years in
repayment.............. 9,059 24,163,850.51 5.97
------- --------------- ------
Total..................... 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Refers to the status of the borrower of each Initial Financed Student Loan
as of the Cutoff Date; such borrower may still be attending school ("In-
School"), may be in a grace period prior to repayment commencing
("Grace"), may be repaying such loan ("Repayment") or may have temporarily
ceased repaying such loan through a deferral ("Deferral") or a forbearance
("Forbearance") period. See "The Federal Family Education Loan Program" in
the Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
(3) The weighted average number of months in repayment for all Initial
Financed Student Loans currently in repayment is 16.45, calculated as the
term to maturity at the commencement of repayment less the number of
months remaining to scheduled maturity as of the Cutoff Date.
SCHEDULED WEIGHTED AVERAGE MONTHS IN STATUS OF THE INITIAL FINANCED STUDENT
LOANS BY CURRENT LOAN PAYMENT STATUS AS OF THE CUTOFF DATE(1)
<TABLE>
<CAPTION>
SCHEDULED MONTHS IN STATUS
CURRENT BORROWER ----------------------------------------------
PAYMENT STATUS IN-SCHOOL GRACE DEFERRAL FORBEARANCE REPAYMENT
---------------- --------- ----- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
In-School................... 15.59 7.01 0.00 0.00 120.00
Grace....................... 0.00 2.06 0.00 0.00 116.76
Deferral.................... 0.00 0.00 14.32 0.00 121.86
Forbearance................. 0.00 0.00 0.00 4.61 145.33
Repayment................... 0.00 0.00 0.00 0.00 129.38
</TABLE>
- --------
(1) Determined without giving effect to any deferral or forbearance periods
that may be granted in the future.
S-32
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE
INITIAL FINANCED STUDENT LOANS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
STATE(1) LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
-------- --------- -------------------- -----------------
<S> <C> <C> <C>
Alabama..................... 1,810 5,311,378.47 1.31%
Alaska...................... 95 382,720.80 0.09
Arizona..................... 329 2,318,651.28 0.57
Arkansas.................... 176 1,002,021.73 0.25
California.................. 1,624 9,976,260.13 2.47
Colorado.................... 449 2,597,272.75 0.64
Connecticut................. 459 2,285,253.64 0.56
Delaware.................... 357 1,350,357.47 0.33
Florida..................... 3,097 13,519,053.29 3.34
Georgia..................... 1,611 7,322,786.13 1.81
Hawaii...................... 89 427,117.42 0.11
Idaho....................... 92 917,955.83 0.23
Illinois.................... 909 4,790,385.35 1.18
Indiana..................... 548 2,711,876.63 0.67
Iowa........................ 119 798,455.01 0.20
Kansas...................... 213 1,180,827.97 0.29
Kentucky.................... 949 3,910,054.53 0.97
Louisiana................... 374 2,216,382.54 0.55
Maine....................... 89 557,481.72 0.14
Maryland.................... 30,637 108,339,806.46 26.79
Massachusetts............... 814 4,152,058.47 1.03
Michigan.................... 714 4,022,773.32 0.99
Minnesota................... 253 2,024,204.38 0.50
Mississippi................. 251 1,267,426.69 0.31
Missouri.................... 322 2,295,509.74 0.57
Montana..................... 58 439,457.77 0.11
Nebraska.................... 87 584,783.96 0.14
Nevada...................... 77 423,613.21 0.10
New Hampshire............... 129 701,368.80 0.17
New Jersey.................. 1,517 7,108,138.46 1.76
New Mexico.................. 121 788,141.02 0.19
New York.................... 2,338 12,016,515.60 2.97
North Carolina.............. 8,589 27,912,653.87 6.90
North Dakota................ 29 364,238.02 0.09
Ohio........................ 1,427 6,938,930.30 1.72
Oklahoma.................... 192 1,199,722.37 0.30
Oregon...................... 221 1,410,024.49 0.35
Pennsylvania................ 1,992 9,906,900.43 2.45
Puerto Rico................. 61 288,008.30 0.07
Rhode Island................ 114 653,834.01 0.16
South Carolina.............. 922 3,907,736.92 0.97
South Dakota................ 35 259,372.18 0.06
Tennessee................... 942 4,752,403.85 1.17
Texas....................... 3,160 15,134,567.17 3.74
Utah........................ 89 823,821.94 0.20
Vermont..................... 77 385,454.83 0.10
Virgin Islands.............. 74 291,508.11 0.07
Virginia.................... 31,086 105,958,498.61 26.19
Washington.................. 369 2,548,818.94 0.63
Washington DC............... 1,956 8,685,649.63 2.15
West Virginia............... 586 2,012,638.80 0.50
Wisconsin................... 245 1,991,776.14 0.49
Wyoming..................... 30 271,076.76 0.07
Other....................... 305 1,153,072.54 0.28
------- -------------- ------
Total..................... 103,208 404,590,798.78 100.00%
======= ============== ======
</TABLE>
S-33
<PAGE>
- --------
(1) Based on the permanent billing addresses of the borrowers of the Initial
Financed Student Loans shown on the Master Servicer's records as of the
Cutoff Date.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
DISTRIBUTION OF INITIAL FINANCED STUDENT
LOANS BY DATE OF DISBURSEMENT
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL BY
NUMBER OUTSTANDING OUTSTANDING
DISBURSEMENT DATE(1) OF LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
-------------------- -------- -------------------- ------------------
<S> <C> <C> <C>
October 1, 1993 and
thereafter............... 52,502 $258,917,542.58 63.99%
Pre-October 1, 1993....... 50,706 145,673,256.20 36.01
------- --------------- ------
Total................... 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Student Loans disbursed prior to October 1, 1993 are 100% guaranteed by
the applicable Guarantor, and reinsured against default by the Department
up to a maximum of 100% of the Guarantee Payments. Student Loans disbursed
on or after October 1, 1993 are 98% guaranteed by the applicable
Guarantor, and reinsured against default by the Department up to a maximum
of 98% of the Guarantee Payments.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
Each of the Financed Student Loans provides or will provide for the
amortization of the outstanding principal balance of such Financed Student
Loan over a series of regular payments. Except as set forth below, each
regular payment consists of an installment of interest which is calculated on
the basis of the outstanding principal balance of such Financed Student Loan
multiplied by the applicable interest rate and further multiplied by the
period elapsed (as a fraction of a calendar year) since the preceding payment
of interest was made. As payments are received in respect of such Financed
Student Loan, the amount received is applied first to interest accrued to the
date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if a borrower pays a regular installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly
greater. Conversely, if a borrower pays a monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly less.
In either case, subject to any applicable Deferral Periods or Forbearance
Periods, and except as set forth below, the borrower pays a regular
installment until the final scheduled payment date, at which time the amount
of the final installment is increased or decreased as necessary to repay the
then outstanding principal balance of such Financed Student Loan.
The Seller makes available to certain of its borrowers with Student Loans
certain payment terms which may result in the lengthening of the remaining
terms of the Student Loans. For example, not all of the loans owned by the
Seller provide for level payments throughout the repayment term of the loans.
Certain of the loans provide for a "graduated phase-in" of the amortization of
principal with a greater portion of principal amortization being required in
the latter stages than would be the case if amortization were on a level
payment basis. The Seller also offers an income-sensitive repayment plan,
pursuant to which repayments are based on the borrower's income. Under that
plan, ultimate repayment may be delayed up to five years. Borrowers under the
Financed Student Loans will continue to be eligible for such graduated payment
and income-sensitive repayment plans.
GUARANTEE OF FINANCED STUDENT LOANS
By the Closing Date, the Eligible Lender Trustee will have entered into a
Guarantee Agreement with each of the Guarantors pursuant to which each of the
Guarantors has agreed to serve as Guarantor for certain of the
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<PAGE>
Financed Student Loans. The following table provides information with respect
to the portion of the Initial Financed Student Loans guaranteed by each
Guarantor:
DISTRIBUTION OF INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY AS OF THE
CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
OUTSTANDING POOL BY
PRINCIPAL OUTSTANDING
NUMBER OF BALANCE OF PRINCIPAL
LOANS LOANS BALANCE
NAME OF GUARANTEE AGENCY GUARANTEED GUARANTEED(1) GUARANTEED
------------------------ ---------- --------------- -----------
<S> <C> <C> <C>
Educational Credit Management
Corporation(2)..................... 31,431 $ 92,936,412.72 22.97%
Texas Guaranteed Student Loan
Corporation........................ 2,607 21,256,071.65 5.25
United Student Aid Funds............ 69,170 290,398,314.41 71.78
------- --------------- ------
Total............................. 103,208 $404,590,798.78 100.00%
======= =============== ======
</TABLE>
- --------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon, estimated to be $5,121,821 as of the Cutoff Date to be
capitalized upon commencement of repayment.
(2) The Financed Student Loans guaranteed by ECMC were guaranteed by the
Virginia State Education Assistance Authority ("SEAA") until June 30,
1996. After that date, the Department designated ECMC as guarantor to
assume SEAA's guarantee obligations and to provide future guarantees of
student loans in Virginia. The historical information presented in the
tables below is for SEAA.
Pursuant to its Guarantee Agreement, each of the Guarantors guarantees
payment of 100% of the principal (including any interest capitalized from time
to time) and accrued interest for each Financed Federal Student Loan
guaranteed by it as to which any one of the following events has occurred:
(a) borrower default, namely, the failure by the borrower thereof to make
monthly principal or interest payments on such Financed Student Loan
when due, provided such failure continues for a statutorily determined
period of time of at least 180 days (except that such guarantee
against such defaults will be 98% of principal and at least 98% of
accrued interest for loans first disbursed on or after October 1,
1993);
(b) any filing by or against the borrower thereof of a petition in
bankruptcy pursuant to any chapter of the Federal bankruptcy code, as
amended;
(c) the death of the borrower thereof; or
(d) the total and permanent disability of the borrower thereof to work and
earn money or attend school, as certified by a qualified physician.
When these conditions are satisfied, the Act requires the Guarantor
generally to pay the claim within 90 days of its submission by the lender. The
obligations of each Guarantor pursuant to its Guarantee Agreement are
obligations solely of such Guarantor, and are not supported by the full faith
and credit of the federal or any state government. However, the Act provides
that if the Secretary of Education (the "Secretary") determines that a Federal
Guarantor is unable to meet its insurance obligations, the Secretary shall
assume responsibility for all functions of the Guarantor under the loan
insurance program of such Guarantor. The Secretary is authorized, among other
things, to take those actions necessary to ensure the continued availability
of Federal Student Loans to residents of the state or states in which the
Guarantor did business, the full honoring of all guarantees issued by a
Guarantor prior to the assumption by the Secretary of the functions of such
Guarantor, and the proper servicing of Federal Student Loans guaranteed by the
Guarantor prior to the Secretary's assumption of the functions of such
Guarantor. Pursuant to the Higher Education Amendments of 1992, under Section
432(o) of the Act if the Department has determined that a Guarantor is unable
to meet its insurance obligations, the loan holder may submit claims directly
to the Department and the Department is required to pay the full Guarantee
Payment (as defined in the Prospectus) due with respect thereto in accordance
with guarantee claim processing standards no more stringent than those of the
Guarantor. However, the Department's obligation to pay guarantee
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<PAGE>
claims directly in this fashion is contingent upon the Department making the
determination referred to above. There can be no assurance that the Department
would ever make such a determination with respect to a Guarantor or, if such a
determination was made, whether such determination or the ultimate payment of
such guarantee claims would be made in a timely manner. For a further
discussion of the Secretary's authority in the event a Guarantor is unable to
meet its insurance obligations, see "Federal Family Education Loan Program--
Federal Guarantors" and "--Federal Insurance and Reinsurance of Federal
Guarantors" in the Prospectus.
Each Guarantor's guarantee obligations with respect to any Financed Student
Loan guaranteed by it are conditioned upon the satisfaction of all the
conditions set forth in the Guarantee Agreement. These conditions typically
include, but are not limited to, the following: (i) the origination and
servicing of such Financed Student Loan being performed in accordance with the
Act and other applicable requirements, (ii) the timely payment to the
Guarantor of the guarantee fee payable with respect to such Financed Student
Loan, (iii) the timely submission to the Guarantor of all required pre-claim
delinquency status notifications and of the claim with respect to such
Financed Student Loan and (iv) the transfer and endorsement of the promissory
note evidencing such Financed Student Loan to the Guarantor upon and in
connection with making a claim to receive Guarantee Payments thereon. Failure
to comply with any of the applicable conditions, including the foregoing, may
result in the refusal of the Guarantor to honor its Guarantee Agreement with
respect to such Financed Student Loan, in the denial of guarantee coverage
with respect to certain accrued interest amounts with respect thereto or in
the loss of certain Interest Subsidy Payments and Special Allowance Payments
with respect thereto. Under the Master Servicing Agreement and the Loan Sale
Agreement, such failure to comply would constitute a breach of the Master
Servicer's covenants or the Seller's representations and warranties, as the
case may be, and would create an obligation of the Master Servicer or the
Seller, as the case may be, to purchase or repurchase such Financed Student
Loan and to reimburse the Trust for such non-guaranteed interest amounts or
such lost Interest Subsidy Payments and Special Allowance Payments with
respect thereto. See "Description of the Transfer and Servicing Agreements--
Sale of Financed Student Loans; Representations and Warranties" and "--
Servicer Covenants" in the Prospectus .
Set forth below is certain current and historical information with respect
to each Guarantor in its capacity as a Guarantor of all education loans
guaranteed by it:
Guarantee Volume. The following table sets forth the approximate aggregate
principal amount of federally reinsured education loans (including loans under
the Parent Loans to Undergraduate Students (PLUS) program but excluding
Federal Consolidation Loans) that have first become guaranteed by each of the
Guarantors and by all guarantors in each of the last five federal fiscal years
for which information is available from the Department:*
STAFFORD, SLS AND PLUS LOANS GUARANTEED
(DOLLARS IN MILLIONS)
FEDERAL FISCAL YEAR
<TABLE>
<CAPTION>
GUARANTEE AGENCY 1989 1990 1991 1992 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TGSLC...................... $ 830.7 $ 703.5 $ 706.4 $ 699.7 $ 813.9
USAF....................... 1,594.0 1,939.4 2,546.0 2,864.3 3,493.9
SEAA**..................... 176.1 260.6 273.1 263.2 332.9
All Guarantee Agencies..... 12,464.2 12,290.8 13,500.0 14,749.2 17,863.1
</TABLE>
- --------
* The information set forth in the table above has been obtained from the
Department of Education's Guaranteed Student Loan Programs Data Books
(each, a "DOE Data Book") for Fiscal Years 1989, 1990, 1991, 1992 and 1993
(with respect to fiscal years 1989 through 1993) has not been audited, and
is not guaranteed as to accuracy or completeness, and is not to be
construed as a representation, by the Seller, the Underwriters or any
Guarantor. The Department of Education ceased publication of the DOE Data
Book after Fiscal Year 1993.
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<PAGE>
** The Financed Student Loans guaranteed by ECMC were guaranteed by SEAA until
June 30, 1996. After that date, the Department designated ECMC as guarantor
to assume SEAA's guarantee obligations and to provide future guarantees of
student loans in Virginia. The historical information presented herein is
for SEAA.
Reserve Ratio. Generally, a guarantor's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (i) sources of funds (including
insurance premiums, state appropriations, federal advances, federal
reinsurance payments, administrative cost allowances, collections on claims
paid and investment earnings) minus (ii) uses of funds (including claims paid
to lenders, operating expenses, lender fees, the Department's share of
collections on claims paid, returned advances and reinsurance fees). The
"original principal amount of outstanding loans" consists of the original
principal amount of loans guaranteed by such guarantor minus (i) the original
principal amount of loans canceled, claims paid, loans paid in full and loan
guarantees transferred from such guarantor to other guarantors plus (ii) the
original principal amount of loan guarantees transferred to such guarantor
from other guarantors. The following table sets forth for each guarantor
listed below such guarantor's reserve ratios and the national average reserve
ratio for all guarantors for the last five federal fiscal years for which
information is available from the Department:*
RESERVE RATIO
FEDERAL FISCAL YEAR
<TABLE>
<CAPTION>
GUARANTEE AGENCY 1989 1990 1991 1992 1993
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TGSLC.......................................... 0.7% 0.6% 0.6% 1.0% 1.1%
USAF........................................... 0.5 0.2 0.1 1.0 1.3
SEAA**......................................... 2.4 1.6 0.9 0.9 0.8
National Average............................... 0.7 1.0 0.8 1.6 1.7
</TABLE>
- --------
* The information set forth in the table above has been obtained from the DOE
Data Book for Fiscal Years 1989, 1990, 1991, 1992 and 1993 (with respect to
fiscal years 1989 through 1993) has not been audited, and is not guaranteed
as to accuracy or completeness, and is not to be construed as a
representation, by the Seller, the Underwriters or any Guarantor. The
Department ceased publication of the DOE Data Book after Fiscal Year 1993.
** The Financed Student Loans guaranteed by ECMC were guaranteed by SEAA until
June 30, 1996. After that date, the Department designated ECMC as guarantor
to assume SEAA's guarantee obligations and to provide future guarantees of
student loans in Virginia. The historical information presented herein is
for SEAA.
Recovery Rates. A guarantor's recovery rate, which provides a measure of the
effectiveness of the collection efforts against defaulting borrowers after the
guarantee claim has been satisfied, is determined by dividing the amount
recovered from borrowers by such guarantor by the aggregate amount of default
claims paid by such guarantor during the applicable federal fiscal year with
respect to borrowers. The table below sets forth the recovery rates for each
guarantor listed below and the national average recovery ratio for all
guarantors for the last five federal fiscal years shown for which information
is available from the Department:*
RECOVERY RATIO
FEDERAL FISCAL YEAR
<TABLE>
<CAPTION>
GUARANTEE AGENCY 1989 1990 1991 1992 1993
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TGSLC...................................... 16.4% 15.6% 18.2% 28.0% 70.9%
USAF....................................... 26.0 23.2 21.2 30.7 34.0
SEAA**..................................... 60.9 76.1 28.0 38.9 46.0
National Average........................... 33.0 31.7 31.1 48.0 35.1
</TABLE>
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<PAGE>
- --------
* The information set forth in the table above has been obtained from the DOE
Data Book for Fiscal Years 1989, 1990, 1991, 1992 and 1993 (with respect to
fiscal years 1989 through 1993) has not been audited, and is not guaranteed
as to accuracy or completeness, and is not to be construed as a
representation, by the Seller, the Underwriters or any Guarantor. The
Department ceased publication of the DOE Data Book after Fiscal Year 1993.
** The Financed Student Loans guaranteed by ECMC were guaranteed by SEAA until
June 30, 1996. After that date, the Department designated ECMC as guarantor
to assume SEAA's guarantee obligations and to provide future guarantees of
student loans in Virginia. The historical information presented herein is
for SEAA.
Claims Rate. For at least one of the five federal fiscal years 1991 through
1995, each guarantor listed below experienced a claims rate in excess of 5%.
For each federal fiscal year that such guarantor experienced a claims rate in
excess of 5%, the claims of such guarantor were not fully reimbursed by the
Department. See "Federal Family Education Loan Program--Federal Insurance and
Reinsurance of Federal Guarantors" in the Prospectus. No assurance can be made
that any of the Guarantors will continue to receive full reimbursement for
reinsurance claims (or the full 98% maximum reimbursement for loans first
disbursed on or after October 1, 1993). The following table sets forth the
claims rate of each guarantor listed below and the national average for all
federal guarantors for each of the last five federal fiscal years shown:*
CLAIMS RATE
FEDERAL FISCAL YEAR
<TABLE>
<CAPTION>
GUARANTEE AGENCY 1991 1992 1993 1994 1995
---------------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TGSLC..................................... 10.52% 8.85% 4.99% 5.21% 4.97%
USAF...................................... 8.41 4.99 6.89 4.99 4.69
SEAA**.................................... 5.16 6.28 4.53 3.71 2.18
National Average.......................... 4.51 4.15 3.83 *** ***
</TABLE>
- --------
* The information set forth in the table above with respect to the individual
guarantors has been obtained from the respective guarantors. National
Average information has been obtained from the DOE Data Book for Fiscal
Years 1991, 1992 and 1993 (with respect to fiscal years 1991 through 1993)
has not been audited, and is not guaranteed as to accuracy or completeness,
and is not to be construed as a representation, by the Seller, the
Underwriters or any guarantor. The Department ceased publication of the DOE
Data Book after Fiscal Year 1993.
** The Financed Student Loans guaranteed by ECMC were guaranteed by SEAA until
June 30, 1996. After that date, the Department designated ECMC as guarantor
to assume SEAA's guarantee obligations and to provide future guarantees of
student loans in Virginia. The historical information presented herein is
for SEAA.
*** Not Available
Each Guarantor has agreed that it will provide a copy of its most recent
financial statements to Securityholders, upon receipt of a written request,
directed: if to TGSLC, Texas Guaranteed Student Loan Corporation, P.O. Box
201725, Austin, TX 78720; if to USAF, United Student Aid Funds, Inc., P.O. Box
6180, Indianapolis, IN 46206; if to ECMC, Educational Credit Management
Corporation, 101 East 5th Street, Suite 2400, St. Paul, MN 55101.
SUBSERVICING
The Master Servicer may from time to time employ subservicers with respect
to all or any portion of the Financed Student Loans; provided, however, that
no such subservicer shall be engaged unless the Master Servicer shall have
received prior written notice from each of the rating agencies that the
engagement of such subservicer shall not cause such rating agency to lower its
then-current rating on any of the Securities. Notwithstanding the use of any
subservicer, the Master Servicer shall remain responsible for the servicing of
the Financed Student Loans under the Master Servicing Agreement as if it alone
were servicing such loans. See "The Seller, the Master Servicer and the
Subservicers" in the Prospectus.
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<PAGE>
DESCRIPTION OF THE SECURITIES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture and the
Certificates will be issued pursuant to the terms of the Trust Agreement, in
each case substantially in the form filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Notes, the
Certificates, the Indenture and the Trust Agreement. The summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Notes, the Certificates, the Indenture and the Trust
Agreement. The following summary supplements and, to the extent inconsistent
therewith, replaces the description of the general terms and provisions of the
Notes, the Certificates, the Indenture and the Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
THE NOTES
Distributions of Interest. Interest will accrue on the principal balance of
the Class A-1 Notes and the Class A-2 Notes at a rate per annum (calculated as
provided below) equal to the Class A-1 Rate and the Class A-2 Rate,
respectively. Interest will accrue from and including the Closing Date or from
the most recent Interest Payment Date on which interest has been paid to but
excluding the current Interest Payment Date (each an "Interest Period") and
will be payable to the Noteholders monthly on each Interest Payment Date.
Interest accrued as of any Interest Payment Date but not paid on such Interest
Payment Date will be due on the next Interest Payment Date together with an
amount equal to interest on such amount at the respective Note Interest Rate.
Interest payments on the Notes for any Interest Payment Date will generally be
funded from (i) in the case of each Interest Payment Date that is not a
Distribution Date, Monthly Available Funds and (ii) in the case of each
Interest Payment Date that is a Distribution Date, Available Funds, in each
case on deposit in the Collection Account and from amounts on deposit in the
Reserve Account remaining after the distribution of the Servicing Fee and the
Administration Fee for such Interest Payment Date. If such sources are
insufficient to pay the Noteholders' Interest Distribution Amount for such
Interest Payment Date, such shortfall will be allocated pro rata to the Class
A-1 Notes and the Class A-2 Notes (based upon the ratio of the portion of the
Noteholders' Interest Distribution Amount accrued with respect to each such
Class to the Noteholders' Interest Distribution Amount). See "Description of
the Transfer and Servicing Agreements--Distributions" and "--Credit
Enhancement" herein.
The "Class A-1 Rate" for each Interest Period will be equal to the lesser of
(a) the Class A-1 LIBOR Rate for such Interest Period and (b) the Student Loan
Rate for such Interest Period. The "Class A-2 Rate" for each Interest Period
will be equal to the lesser of (a) the Class A-2 LIBOR Rate for such Interest
Period and (b) the Student Loan Rate for such Interest Period.
The "Class A-1 LIBOR Rate" shall be equal to one-month LIBOR for such
Interest Period (determined as described herein) plus %.
The "Class A-2 LIBOR Rate" shall be equal to one-month LIBOR for such
Interest Period (determined as described herein) plus %.
The "Student Loan Rate" for any Interest Period will equal the product of
(a) the quotient obtained by dividing (i) 360 by (ii) the actual number of
days elapsed in such Interest Period and (b) the percentage equivalent of a
fraction, (i) the numerator of which is equal to Expected Interest Collections
for such Interest Period less the Servicing Fees and the Administration Fee
with respect to such Interest Period and (ii) the denominator of which is the
outstanding principal balance of the Securities as of the first day of such
Interest Period (after, if the first day of such Interest Period is a
Distribution Date, giving effect to any principal distributions on the
Securities on such Distribution Date).
"Expected Interest Collections" means, with respect to any Interest Period,
the sum of (i) the amount of interest accrued, net of Monthly Rebate Fees and
other amounts required by the Act to be paid to the Department
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<PAGE>
or to be repaid to borrowers, with respect to the Financed Student Loans for
the related Student Loan Rate Accrual Period (whether or not such interest is
actually paid), (ii) all Interest Subsidy Payments and Special Allowance
Payments estimated to have accrued for such Student Loan Rate Accrual Period,
whether or not actually received and (iii) Investment Earnings for such
Student Loan Rate Accrual Period.
On each Distribution Date, any Noteholders' Interest LIBOR Carryover
incurred and unpaid to and including such Distribution Date will be payable on
such date but only out of any Reserve Account Excess, if any, after the
payment of any portion of such excess required to be distributed as principal
on the Notes or the Certificates. Any amount of Noteholders' Interest LIBOR
Carryover remaining unpaid on the respective final maturity date of the Class
A-1 Notes and Class A-2 Notes will never become due and payable and will be
discharged as to the Class A-1 or Class A-2 Notes, as applicable, on such
date.
Distributions of Principal. Principal payments will be made to the
Noteholders on each Distribution Date, in an amount generally equal to the
Principal Distribution Amount for such Distribution Date, until the principal
balance of the Notes is reduced to zero. Payments on the Notes of the
Noteholders' Principal Distribution Amount will generally be derived from
Available Funds and, for each Distribution Date on and after the January 2000
Distribution Date, from amounts on deposit in the Reserve Account, in each
case to the extent remaining after the distribution of the Servicing Fee and
all overdue Servicing Fees, the Administration Fee and all overdue
Administration Fees, the Noteholders' Interest Distribution Amount and the
Certificateholders' Interest Distribution Amount. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Credit Enhancement"
herein. If such sources are insufficient to pay the Noteholders' Principal
Distribution Amount for such Distribution Date, such shortfall will be added
to the principal payable to the Noteholders on subsequent Distribution Dates.
In addition, on each Distribution Date, the Reserve Account Excess, if any,
for such Distribution Date will be applied, as described herein, to the unpaid
principal balance of the Notes in the order of priority set forth herein until
the unpaid principal balance of the Notes and the Certificates no longer
exceeds the sum of the Pool Balance plus the Pre-Funded Amount as of the close
of business on the last day of the related Collection Period. See "Description
of the Transfer and Servicing Agreements--Credit Enhancement--Reserve Account"
herein. Also, on each Distribution Date on or after the January 2007
Distribution Date, if the Pool Balance on such Distribution Date is less than
10% of the sum of the Initial Pool Balance plus the Initial Pre-Funded Amount,
any Reserve Account Excess remaining after payment of certain amounts as
described in "Description of the Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account," will be applied to prepay the unpaid principal
balance of the Notes, in the order of priority set forth herein. The amount,
if any, available to be distributed as set forth in the two preceding
sentences will not be part of the Principal Distribution Amount for a
Distribution Date and Noteholders will have no entitlement thereto except to
the extent that Reserve Account Excess is sufficient therefor of which there
can be no assurance. See "Description of the Transfer and Servicing
Agreements--Credit Enhancement--Reserve Account" herein.
The aggregate amount distributable as principal on the Notes on each
Distribution Date will be applied on each Distribution Date, first, to the
principal balance of the Class A-1 Notes until such principal balance is
reduced to zero and then to the principal balance of the Class A-2 Notes until
such principal balance is reduced to zero.
The aggregate outstanding principal amount of the Class A-1 Notes will be
payable in full on the January 2005 Distribution Date (the "Class A-1 Final
Maturity Date") and the aggregate outstanding principal amount of the Class A-
2 Notes will be payable in full on the April 2016 Distribution Date (the
"Class A-2 Final Maturity Date"). However, the actual maturity of the Class A-
1 Notes or the Class A-2 Notes could occur other than on such date as a result
of a variety of factors. See "Risk Factors--Yield and Prepayment
Considerations" herein.
Mandatory Redemption. If any amounts remain on deposit in the Pre-Funding
Account on the last day of the Funding Period after giving effect to all
Additional Fundings on or prior to such date, such amounts will be
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<PAGE>
used on the Distribution Date on or immediately following such date to redeem,
in order, the Class A-1 Notes, the Class A-2 Notes and the Certificates, each
in an amount not to exceed their outstanding principal balance. The aggregate
principal amounts of Notes to be redeemed will be an amount equal to the
amount then on deposit in the Pre-Funding Account on the last day of the
Funding Period.
THE CERTIFICATES
Distributions of Interest. Certificateholders will be entitled to
distributions on each Interest Payment Date in an amount equal to the amount
of interest that would accrue on the Certificate Balance at the Certificate
Rate. Such amounts will be distributable monthly on each Interest Payment
Date. That interest entitlement will accrue from and including the Closing
Date or from the most recent Interest Payment Date on which interest
distributions have been made to but excluding the current Interest Payment
Date and will be calculated as provided below. Interest distributions due for
any Distribution Date but not distributed on such Interest Payment Date will
be due on the next Interest Payment Date increased by an amount equal to
interest on such amount at the Certificate Rate. Interest distributions with
respect to the Certificates for such Interest Payment Date will generally be
funded from the portion of (i) in the case of each Interest Payment Date that
is not a Distribution Date, Monthly Available Funds and (ii) in the case of
each Distribution Date, Available Funds, in each case on deposit in the
Collection Account and from amounts on deposit in the Reserve Account
remaining after the distribution of the Servicing Fee and all overdue
Servicing Fees, the Administration Fee and all overdue Administration Fees and
the Noteholders' Interest Distribution Amount for such Interest Payment Date.
If such sources are insufficient to pay the Certificateholders' Interest
Distribution Amount for such Interest Payment Date, no other source will be
available to cover such shortfall on such date. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Credit Enhancement--
Reserve Account" herein.
The "Certificate Rate" for each Interest Period will be equal to the lesser
of (a) the Certificate LIBOR Rate for such Interest Period and (b) the Student
Loan Rate for such Interest Period.
The "Certificate LIBOR Rate" shall be equal to one-month LIBOR for such
Interest Period (determined as described herein) plus %.
On each Distribution Date, any Certificateholders' Interest LIBOR Carryover
incurred and unpaid to and including such Distribution Date will be payable on
such Distribution Date but only to the extent of any Reserve Account Excess
remaining after the payment of (i) any portion of such amount required to be
distributed as principal on the Notes and Certificates and (ii) any
Noteholders' Interest LIBOR Carryover. Any amount of Certificateholders'
Interest LIBOR Carryover remaining after distribution of all Available Funds
on the Final Maturity Date will never become due and payable and will be
discharged on such date.
Distributions of Principal. Certificateholders will be entitled to
distributions on each Distribution Date on and after which the Notes are paid
in full in an amount generally equal to (a) the Principal Distribution Amount
for such Distribution Date and (b) any Reserve Account Excess distributable to
Certificateholders as described under "Description of the Transfer and
Servicing Agreements--Credit Enhancement--Reserve Account" herein.
Distributions with respect to Principal Distribution Amount on the
Certificates for such Distribution Date will generally be funded from the
portion of Available Funds and, for each Distribution Date on or after the
January 2000 Distribution Date, from amounts on deposit in the Reserve
Account, in each case to the extent remaining after distribution of the
Servicing Fee and all overdue Servicing Fees, the Administration Fee and all
overdue Administrative Fees and the Certificateholders' Interest Distribution
Amount for such Distribution Date. See "Description of the Transfer and
Servicing Agreements--Distributions" and "--Credit Enhancement--Reserve
Account" herein. If such sources are insufficient to pay the
Certificateholders' Principal Distribution Amount for such Distribution Date,
no other source will be available to cover such shortfall on such date.
On each Distribution Date on and after the January 2007 Distribution Date if
the Notes are paid in full and the Pool Balance is less than 10% of the sum of
the Initial Pool Balance plus the Initial Pre-Funded Amount, the Reserve
Account Excess, if any, for such Distribution Date remaining after payment of
certain amounts as described in "Description of the Transfer and Servicing
Agreements--Credit Enhancement--Reserve Account," will be applied to pay the
principal on the Certificates. The amount, if any, available to be distributed
as set forth in the preceding sentence will not be part of the Principal
Distribution Amount for a Distribution Date and
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<PAGE>
Certificateholders will have no entitlement thereto except to the extent the
Reserve Account Excess is sufficient therefor of which there can be no
assurance. See "Description of the Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account" herein.
The Certificateholders will not be entitled to any payments of principal
until the Notes are paid in full.
The outstanding principal amount of the Certificates will be payable in full
on the July 2017 Distribution Date (the "Final Maturity Date"). The actual
date on which the aggregate outstanding principal and accrued interest of the
Certificates will be paid in full may be other than such date, however, based
on a variety of factors, including those described under "The Financed Student
Loan Pool--Maturity and Prepayment Considerations" herein.
Subordination of the Certificates. The rights of Certificateholders to
receive payments of interest are subordinated to the rights of the Noteholders
to receive payments of interest and the rights of the Certificateholders to
receive payments of principal are subordinated to the rights of the
Noteholders to receive payments of interest and principal. Consequently,
Monthly Available Funds or Available Funds, as the case may be, on deposit in
the Collection Account and amounts on deposit in the Reserve Account on (i)
any Interest Payment Date that is not a Distribution Date will be applied to
the payment of interest on the Notes before payment of interest on the
Certificates and (ii) any Interest Payment Date that is also a Distribution
Date will be applied to the payment of interest on the Notes before payment of
interest and principal on the Certificates and will be applied to the payment
of the Noteholders' Principal Distribution Amount before payment of principal
on the Certificates. No distributions in respect of principal of the
Certificates will be made until the Distribution Date on or after which the
Notes have been paid in full. Moreover, on any Distribution Date, the Reserve
Account Excess, if any, with respect to such Distribution Date will be applied
to the payment of the Noteholders' Interest LIBOR Carryover prior to any
distribution thereof to Certificateholders to cover the Certificateholders'
Interest LIBOR Carryover, provided that such amounts will first be applied to
reduce to the aggregate principal balance of Notes and, in the event that the
Notes have been paid in full, the Certificates to the extent that the unpaid
principal balance of the Notes and the Certificates exceeds the sum of the
Pool Balance plus the Pre-Funded Amount as of the last day of the related
Collection Period. If amounts otherwise allocable to the Certificates are used
to fund payments of interest and principal on the Notes, distributions with
respect to the Certificates may be delayed or reduced and Certificateholders
may suffer a loss. See "Risk Factors--Subordination of the Certificates"
herein.
DETERMINATION OF LIBOR
Pursuant to the Administration Agreement, the Administrator will determine
LIBOR for purposes of calculating the Certificate LIBOR Rate, the Class A-1
LIBOR Rate and the Class A-2 LIBOR Rate for each given Interest Period on the
second business day prior to the commencement of each Interest Period, (each,
a "LIBOR Determination Date"). For purposes of calculating LIBOR, a business
day is any day on which banks in London and New York City are open for the
transaction of international business. Interest due for any Interest Period
will be determined based on the actual number of days in such Interest Period
over a 360-day year.
"LIBOR" means, with respect to any Interest Period, the London interbank
offered rate for deposits in U.S. dollars having a maturity of one month
commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such
LIBOR Determination Date. If such rate does not appear on Telerate Page 3750,
the rate for that day will be determined on the basis of the rates at which
deposits in U.S. dollars, having the Index Maturity and in a principal amount
of not less than U.S. $1,000,000, are offered at approximately 11:00 a.m.,
London time, on such LIBOR Determination Date to prime banks in the London
interbank market by the Reference Banks. The Administrator will request the
principal London office of each of such Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, the rate for that
day will be the arithmetic mean of the quotations. If fewer than two
quotations are provided, the rate for that day will be the arithmetic mean of
the rates quoted by major banks in New York City, selected by the
Administrator, at approximately 11:00 a.m., New York City time, on such LIBOR
Determination Date for loans in U.S. dollars to leading European banks having
the Index Maturity and in a principal amount equal to an amount of not less
than U.S. $1,000,000.
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"Telerate Page 3750" means the display page 3750 designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Administrator.
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include any
underwriters, agents or dealers with respect to the Securities offered hereby.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the Indenture Trustee or the Eligible Lender
Trustee, as applicable (the "Applicable Trustee"), through Participants and
Indirect Participants. Under a book-entry format, Securityholders may
experience some delay in their receipt of payments, since such payments will
be forwarded by the Applicable Trustee to Cede, as nominee for DTC. DTC will
forward such payments to its Participants, which thereafter will forward them
to Indirect Participants or Securityholders. It is anticipated that the only
"Securityholder," "Certificateholder" and "Noteholder" will be Cede, as
nominee for DTC. Securityholders will not be recognized by the Applicable
Trustee as Noteholders or Certificateholders, as such terms are used in the
Indenture and the Trust Agreement, respectively and Securityholders will be
permitted to exercise the rights of Securityholders only indirectly through
DTC and its Participants (who in turn will exercise their rights through DTC).
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments
on behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes
in accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Cedel provides to its Cedel Participants, among
other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As a
professional depository, Cedel is subject to regulation by the Luxembourg
Monetary Institute. Cedel Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include any
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underwriters, agents or dealers with respect to the Securities offered hereby.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear Clearance
Systems, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include any
underwriters, agents or dealers with respect to the Securities offered hereby.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawals of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no
record of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants
in accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Cedel or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a beneficial holder of Notes under the
Indenture on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Noteholders may hold their Securities through DTC (in the United States) or
Cedel or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems.
The Notes will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A. ("Citibank") will act
as depositary for Cedel and Morgan Guaranty Trust Company of New York
("Morgan") will act as depositary for Euroclear (in such capacities,
individually the "Depositary" and collectively the "Depositaries").
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
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Because of time-zone differences, credits of securities received in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
Participant or Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
Cross-market transfers between persons holding Notes directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC Rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions to the Depositaries.
DTC has advised the Administrator that it will take any action permitted to
be taken by a Securityholder under the Indenture or the Trust Agreement, as
the case may be, only at the direction of one or more Participants to whose
accounts with DTC the Securities are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of interests in the Notes among Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any
time.
NEITHER THE TRUST, THE SELLER, THE MASTER SERVICER, ANY SUBSERVICER, THE
ADMINISTRATOR, THE ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE NOR THE
UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS,
CEDEL PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT
AS NOMINEES WITH RESPECT TO (L) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC,
CEDEL OR EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL OR
EUROCLEAR OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN
RESPECT OF THE PRINCIPAL AMOUNT OR INTEREST ON THE SECURITIES, (3) THE
DELIVERY BY ANY PARTICIPANT, CEDEL PARTICIPANT OR EUROCLEAR PARTICIPANT OF ANY
NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS
OF THE INDENTURE OR THE TRUST AGREEMENT TO BE GIVEN TO SECURITYHOLDERS OR (4)
ANY OTHER ACTION TAKEN BY DTC AS THE SECURITYHOLDER.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of certain terms of the Loan Sale Agreement,
pursuant to which the Eligible Lender Trustee on behalf of the Trust will
purchase the Financed Student Loans; the Master Servicing Agreement pursuant
to which the Master Servicer will service the Financed Student Loans; the
Administration Agreement, pursuant to which the Administrator will undertake
certain other administrative duties and functions with respect to the Trust
and the Financed Student Loans and the Trust Agreement, pursuant to which the
Trust will be created and the Certificates will be issued (collectively, the
"Transfer and Servicing Agreements"). Forms of the
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Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement. A copy of the Transfer and Servicing Agreements will
be filed with the Commission following the issuance of the Securities. This
summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Transfer and Servicing
Agreements. The following summary supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Transfer and Servicing Agreements set forth in the Prospectus, to which
description reference is hereby made.
SALE OF FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
Information with respect to the sale of the Initial Financed Student Loans
from the Seller to the Eligible Lender Trustee on behalf of the Trust on the
Closing Date pursuant to the Loan Sale Agreement and the representations and
warranties by the Seller in connection therewith and in connection with the
purchase of Student Loans by the Trust pursuant to Additional Fundings is set
forth under "Description of the Transfer and Servicing Agreements" in the
Prospectus. If the Seller is required under the Loan Sale Agreement to
repurchase a Financed Student Loan, the Purchase Amount for such loan will be
101.73% of the principal balance plus accrued interest thereon expected to be
capitalized upon repayment of such Financed Student Loan so long as the
outstanding principal balance of the Notes and the Certificates exceeds the
Pool Balance plus the Pre-Funded Amount as of the date of such purchase, and
100% of the outstanding principal balance plus accrued interest thereon
expected to be capitalized upon repayment of such Financed Student Loan
thereafter, plus, in either case, accrued interest thereon to the date of such
purchase. The net proceeds received from the sale of the Notes and the
Certificates will be applied to the purchase of the Initial Financed Student
Loans and to the deposit of the Pre-Funded Amount in the Pre-Funding Account.
ADDITIONAL FUNDINGS
During the period (the "Funding Period") from the Closing Date until the
first to occur of (i) the Distribution Date on which the amount on deposit in
the Pre-Funding Account is less than $100,000, (ii) an Event of Default
occurring under the Indenture, a Servicer Default occurring under the Master
Servicing Agreement or an Administrator Default occurring under the
Administration Agreement, (iii) certain events of insolvency occurring with
respect to the Seller, or (iv) the last day of the Collection Period preceding
the January 1999 Distribution Date, an account will be maintained in the name
of the Indenture Trustee (the "Pre-Funding Account"). The amount on deposit in
the Pre-Funding Account (the "Pre-Funded Amount") on the Closing Date will
equal $16,552,201.22 (the "Initial Pre Funded Amount") (which will be
deposited out of the net proceeds of the sale of the Securities) and, during
the Funding Period, will be reduced from time to time by the amount thereof
used to make Additional Fundings in accordance with the Loan Sale Agreement.
Following the Closing Date, the Eligible Lender Trustee on behalf of the
Trust will be obligated from time to time, subject to the conditions described
below, to purchase from the Seller Federal Student Loans which (i) are made to
a borrower who is also a borrower under at least one outstanding Initial
Financed Student Loan, (ii) are made under the same loan program as such
Initial Financed Student Loan and (iii) have the same Guarantor as such
Initial Financed Student Loan (each a "Serial Loan" and collectively, the
"Serial Loans"). Serial Loans will be made by the Seller at the discretion and
in accordance with usual business practices of the Seller.
During the Funding Period, each purchase of a Serial Loan will be funded by
means of a transfer from the Pre-Funding Account of an amount equal to the
principal balance owed by the applicable borrower thereon plus accrued
interest thereon expected to be capitalized upon repayment (the "Loan Purchase
Amount"). Following the end of the Funding Period, such purchases will be
funded by amounts on deposit in the Collection Account representing
collections of principal on the outstanding Financed Student Loans which
otherwise would have been part of the Available Funds of the Trust, as
described under "Description of the Transfer and Servicing Agreements--
Distributions" herein.
A purchase of Serial Loans will be prohibited at any time after (i) an Event
of Default occurs under the Indenture, a Servicer Default occurs under the
Master Servicing Agreement or an Administrator Default occurs under the
Administration Agreement or (ii) certain events of insolvency occur with
respect to the Seller.
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On certain dates designated by the Seller (each, a "Transfer Date"), the
Seller will sell and assign, without recourse, to the Eligible Lender Trustee
on behalf of the Trust, its entire interest in the specified Serial Loans
(collectively, the "Additional Student Loans") made during the period
preceding such Transfer Date, in each case as of the date specified in the
applicable Transfer Agreement to be delivered on such Transfer Date (each, a
"Subsequent Cutoff Date"). Subject to the satisfaction of the foregoing
conditions, the Seller will convey the Additional Student Loans to the
Eligible Lender Trustee on behalf of the Trust on each such Transfer Date
pursuant to the Loan Sale Agreement and the applicable Transfer Agreement (a
"Transfer Agreement") executed by the Seller, the Master Servicer, the
Eligible Lender Trustee and the Administrator on such Transfer Date. Each such
Transfer Agreement will include as an exhibit a schedule identifying each
Additional Student Loan transferred on such Transfer Date. Upon such
conveyance of Additional Student Loans to the Eligible Lender Trustee on
behalf of the Trust, the Pool Balance will increase in an amount equal to the
Loan Purchase Amount of the Additional Student Loans and an amount equal to
the Loan Purchase Amount of such Additional Student Loans will be withdrawn,
during the Funding Period from the Pre-Funding Account on such date and
transferred to the Seller, and after the Funding Period, from the Collection
Account in the manner described above.
As described under "The Family Education Loan Program" in the Prospectus,
during certain qualifying periods, interest on certain Financed Student Loans
is not required to be currently paid, but instead is added to the outstanding
principal balance of the loan at the end of the qualifying period. In order to
minimize the possibility that the failure to receive current interest payments
on such loans during such periods will result in a shortfall of the amount
required to be distributed on the Notes and the Certificates, amounts on
deposit in the Pre-Funding Account will be applied during the Funding Period
to make deposits in the Collection Account in lieu of current collections of
interest on such loans. Use of the funds in the Pre-Funding Account will be
limited solely to making these deposits in lieu of current collections of
interest on these loans and the purchase of Serial Loans as discussed above.
Following the end of the Funding Period, the Pre-Funding Account will cease to
be available as a source to fund such deposits in the Collection Account, and
thereafter such payments will be funded through the application of amounts
which would otherwise have been distributable in respect of the Principal
Distribution Amount for the related Distribution Date, as described under "--
Distributions" below.
ACCOUNTS
In addition to the Collection Account referred to in the Prospectus under
"Description of the Transfer and Servicing Agreements--Accounts", the
Administrator will establish and maintain the Pre-Funding Account and the
Reserve Account, in the name of the Indenture Trustee on behalf of the
Noteholders and the Certificateholders.
SERVICING COMPENSATION; ADMINISTRATION FEE
The Master Servicer will be entitled to receive monthly with respect to each
Financed Student Loan the Servicing Fee payable on each Interest Payment Date.
The Servicing Fee for any Interest Payment Date is equal to one-twelfth of the
product of (a) 1.25% per annum and (b) the Pool Balance as of the last day of
the preceding Collection Period. The Servicing Fee (together with any portion
of the Servicing Fee that remains unpaid from prior Interest Payment Dates)
will be payable on each Interest Payment Date and will be paid solely out of
Monthly Available Funds in the case of an Interest Payment Date that is not a
Distribution Date (and out of Available Funds in the case of each Distribution
Date) and amounts on deposit in the Reserve Account on such date.
As compensation for the performance of the Administrator's obligations under
the Administration Agreement and as reimbursement for its expenses related
thereto, the Administrator will be entitled to receive monthly in arrears on
each Interest Payment Date the Administration Fee. The Administration Fee for
any Interest Payment Date is an amount equal to one-twelfth of the product of
(i) 0.04% per annum and (ii) the Pool Balance as of the last day of the
preceding Collection Period.
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DISTRIBUTIONS
Deposits to Collection Account. On or about the third business day prior to
each Interest Payment Date (the "Determination Date"), the Administrator will
provide the Indenture Trustee with certain information with respect to the
preceding Collection Period or Monthly Collection Period, including the amount
of Available Funds or Monthly Available Funds received with respect to the
Financed Student Loans and the aggregate Purchase Amount relating to the
Financed Student Loans to be repurchased by the Seller or to be purchased by
the Master Servicer.
"Monthly Collection Period" means, with respect to any Interest Payment Date
that is not a Distribution Date, the calendar month immediately preceding the
month of such Interest Payment Date (or, with respect to the first Monthly
Collection Period, the period beginning on the Cutoff Date and ending on
December 31, 1996).
For purposes hereof, the term "Monthly Available Funds" means, with respect
to each Interest Payment Date that is not a Distribution Date, the sum of the
following amounts with respect to the related Monthly Collection Period: (i)
all collections received by the Master Servicer on the Financed Student Loans
(including any Guarantee Payments received with respect to the Financed
Student Loans); (ii) any Interest Subsidy Payments and Special Allowance
Payments received by the Eligible Lender Trustee during such Monthly
Collection Period with respect to the Financed Student Loans; (iii) all
proceeds of the liquidation of defaulted Financed Student Loans ("Liquidated
Student Loans"), which became Liquidated Student Loans during such Monthly
Collection Period in accordance with the Master Servicer's customary servicing
procedures, net of expenses incurred by the Master Servicer in connection with
such liquidation and any amounts required by law to be remitted to the
borrower on such Liquidated Student Loans ("Liquidation Proceeds"), and all
recoveries in respect of Liquidated Student Loans which were written off in
prior Monthly Collection Periods; (iv) that portion of amounts released from
the Pre-Funding Account with respect to Additional Fundings relating to those
interest amounts on the Financed Student Loans which are or will be
capitalized; (v) the aggregate Purchase Amounts received for those Financed
Student Loans repurchased by the Seller or purchased by the Master Servicer
under an obligation which arose during the related Monthly Collection Period;
(vi) Investment Earnings for such Distribution Date, (vii) any compensatory
payments made by the Seller due to incentive programs offered to borrowers
under the Financed Student Loans and (viii) with respect to each Interest
Payment Date other than a Distribution Date and other than an Interest Payment
Date immediately succeeding a Distribution Date, Monthly Available Funds
remaining from the Monthly Collection Period relating to the preceding
Interest Payment Date, after giving effect to the application of such Monthly
Available Funds on such preceding Interest Payment Date; provided, however,
that if with respect to any such Interest Payment Date there would not be
sufficient funds, after application of Monthly Available Funds (as defined
above) and amounts available from the Reserve Account, to pay any of the items
specified in clauses (i) through (iv) respectively under the first paragraph
of "--Distributions--Distributions from Collection Account," then Monthly
Available Funds for such Interest Payment Date will include, in addition to
the Monthly Available Funds (as defined above), amounts on deposit in the
Collection Account on the Determination Date relating to such Interest Payment
Date which would have constituted Monthly Available Funds for the Interest
Payment Date succeeding such Interest Payment Date up to the amount necessary
to pay such items, and the Monthly Available Funds for such succeeding
Interest Payment Date will be adjusted accordingly; and provided, further,
that Monthly Available Funds will exclude (A) all payments and proceeds
(including Liquidation Proceeds) of any Financed Student Loans the Purchase
Amount of which has been included in Monthly Available Funds for a prior
Collection Period, (B) except as expressly included in clause (iv) above,
amounts released from the Pre-Funding Account, (C) any Monthly Rebate Fees
paid and other amounts required by the Act to be paid to the Department or to
be repaid to borrowers, with respect to the Financed Student Loans during the
related Monthly Collection Period as described under "Risk Factors--Fees
Payable on Certain Financed Student Loans Prior to Distributions on the
Securities" and (D) any collections in respect of principal on the Financed
Student Loans applied by the Eligible Lender Trustee on behalf of the Trust
after the end of the Funding Period to purchase Serial Loans during the
related Monthly Collection Period as described under "--Additional Fundings"
above.
The term "Available Funds" means, with respect to a Distribution Date and
the related Collection Period, the sum of the amounts specified in clauses
(i)-(vii) of the definition of Monthly Available Funds for each of the
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three Monthly Collection Periods included in such Collection Period; provided,
however, that if with respect to any Distribution Date there would not be
sufficient funds, after application of Available Funds (as defined above) and
amounts available from the Reserve Account, to pay any of the items specified
in clauses (i) through (vi) respectively under the second paragraph of "--
Distributions--Distributions from Collection Account," then Available Funds
for such Distribution Date will include, in addition to the Available Funds
(as defined above), amounts on deposit in the Collection Account on the
Determination Date relating to such Distribution Date which would have
constituted Available Funds for the Distribution Date succeeding such
Distribution Date up to the amount necessary to pay such items, and the
Available Funds for such succeeding Distribution Date will be adjusted
accordingly; and provided, further, that Available Funds will exclude (A) all
payments and proceeds (including Liquidation Proceeds) of any Financed Student
Loans the Purchase Amount of which has been included in Available Funds for a
prior Collection Period, (B) except as expressly included in clause (iv) of
the definition of Monthly Available Funds, amounts released from the Pre-
Funding Account, (C) any Monthly Rebate Fees paid and other amounts required
by the Act to be paid to the Department or to be repaid to borrowers, with
respect to the Financed Student Loans paid during the related Collection
Period on behalf of the Trust, (D) any collections in respect of principal on
the Financed Student Loans applied by the Eligible Lender Trustee on behalf of
the Trust after the end of the Funding Period to purchase Serial Loans during
the related Collection Period as described under "--Additional Fundings"
above, and (E) the Servicing Fee and all overdue Servicing Fees, the
Administration Fee and all overdue Administration Fees, the Noteholders'
Interest Distribution Amount and the Certificateholders' Interest Distribution
Amount paid on each Interest Payment Date that is not a Distribution Date
during the related Collection Period.
Distributions from Collection Account. On each Interest Payment Date that is
not a Distribution Date the Administrator will instruct the Indenture Trustee
to make the following distributions in the order of priority specified below,
to the extent of Monthly Available Funds for the related Monthly Collection
Period: (i) the Servicing Fee for such Interest Payment Date and all overdue
Servicing Fees to the Master Servicer, (ii) the Administration Fee for such
Interest Payment Date and all overdue Administration Fees to the
Administrator, (iii) the Noteholders' Interest Distribution Amount to the
Class A-1 Noteholders and the Class A-2 Noteholders, on a pro rata basis
(based on the ratio of the portion of the Noteholders' Interest Distribution
Amount accrued with respect to each such Class to the Noteholders' Interest
Distribution Amount) and (iv) the Certificateholders' Interest Distribution
Amount to the Certificateholders.
On each Distribution Date, the Administrator will instruct the Indenture
Trustee to make the following deposits and distributions, in the amounts and
in the order of priority specified below, to the extent of the Available Funds
for the related Collection Period:
(i) to the Master Servicer, the Servicing Fee for such Distribution Date
and all prior unpaid Servicing Fees;
(ii) to the Administrator, the Administration Fee for such Distribution
Date and all unpaid Administration Fees;
(iii) to the Class A-1 Noteholders and the Class A-2 Noteholders, on a
pro rata basis, the Noteholders' Interest Distribution Amount (based on the
ratio of the portion of the Noteholders' Interest Distribution Amount
accrued with respect to each such Class to the Noteholders' Interest
Distribution Amount);
(iv) to the Certificateholders, the Certificateholders' Interest
Distribution Amount;
(v) to the Class A-1 Noteholders until the outstanding principal balance
of the Class A-1 Notes is zero and then to the Class A-2 Noteholders, the
Noteholders' Principal Distribution Amount;
(vi) on each Distribution Date on and after which the Notes have been
paid in full, to the Certificateholders, the Certificateholders' Principal
Distribution Amount; and
(vii) to the Reserve Account, any remaining amounts after application of
clauses (i) through (vi).
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<PAGE>
For purposes hereof, the following terms have the following meanings:
"Certificate Balance" equals $14,996,000 as of the Closing Date and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the Certificateholders' Interest Distribution Amount for
such Distribution Date plus, for each Distribution Date on and after which the
Notes have been paid in full, the Certificateholders' Principal Distribution
Amount for such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Interest Payment Date, the excess of (i) the Certificateholders' Interest
Distribution Amount on the preceding Interest Payment Date over (ii) the
amount of interest actually distributed to the Certificateholders on such
preceding Interest Payment Date, plus interest on the amount of such excess,
to the extent permitted by law, at the Certificate Rate from such preceding
Interest Payment Date to the current Interest Payment Date.
"Certificateholders' Interest Distribution Amount" means, with respect to
any Interest Payment Date, the sum of (i) the amount of interest accrued at
the Certificate Rate for the related Interest Period on the outstanding
Certificate Balance on the immediately preceding Distribution Date after
giving effect to all distributions of principal to Certificateholders on such
Distribution Date (or in the case of the first three Interest Payment Dates
and the first Distribution Date, on the Closing Date) and (ii) the
Certificateholders' Interest Carryover Shortfall for such Interest Payment
Date; provided, however, that the Certificateholders' Interest Distribution
Amount will not include any Certificateholders' Interest LIBOR Carryover.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date on or after which the Notes have been paid in full,
the excess of (i) the sum of the Certificateholders' Principal Distribution
Amount on such Distribution Date and any outstanding Certificateholders'
Principal Carryover Shortfall for the preceding Distribution Date over (ii)
the amount of principal actually distributed to the Certificateholders on such
Distribution Date.
"Certificateholders' Principal Distribution Amount" means, on each
Distribution Date on and after which the principal balance of the Notes has
been paid in full, the sum of (a) the Principal Distribution Amount for such
Distribution Date (or, in the case of the Distribution Date on which the
principal balance of the Notes is paid in full, any remaining Principal
Distribution Amount not otherwise distributed to Noteholders on such
Distribution Date) and (b) the Certificateholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date; provided,
however, that the Certificateholders' Principal Distribution Amount will in no
event exceed the Certificate Balance. In addition, on the Final Maturity Date,
or on the related Distribution Date following a sale of the Financed Student
Loans in the manner described under "--Termination", the principal required to
be distributed to the Certificateholders will include the amount required to
reduce the outstanding Certificate Balance to zero.
"Noteholders' Distribution Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Interest Distribution Amount and the
Noteholders' Principal Distribution Amount for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Interest Payment Date, the excess of (i) the Noteholders' Interest
Distribution Amount on the preceding Interest Payment Date over (ii) the
amount of interest actually distributed to the Noteholders on such preceding
Interest Payment Date, plus interest on the amount of such excess, to the
extent permitted by law, at the weighted average interest rate borne by the
Class A-1 Notes and the Class A-2 Notes from such preceding Interest Payment
Date to the current Interest Payment Date.
"Noteholders' Interest Distribution Amount" means, with respect to any
Interest Payment Date, the sum of (i) the amount of interest accrued at the
respective Note Interest Rate for the related Interest Period on the
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outstanding principal balance of each class of Notes on the immediately
preceding Distribution Date after giving effect to all distributions of
principal to holders of Notes of such class on such Distribution Date (or in
the case of the first three Interest Payment Dates and the first Distribution
Date, on the Closing Date) and (ii) the Noteholders' Interest Carryover
Shortfall for such Interest Payment Date; provided, however, that the
Noteholders' Interest Distribution Amount will not include any Noteholders'
Interest LIBOR Carryover.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of (i) the sum of the Noteholders' Principal
Distribution Amount on such Distribution Date and any outstanding Noteholders'
Principal Carryover Shortfall for the preceding Distribution Date over (ii)
the amount of principal actually distributed to the Noteholders on such
Distribution Date.
"Noteholders' Principal Distribution Amount" means, with respect to any
Distribution Date, the Principal Distribution Amount for such Distribution
Date plus the Noteholders' Principal Carryover Shortfall as of the close of
the preceding Distribution Date; provided, however, that the Noteholders'
Principal Distribution Amount will not exceed the outstanding principal
balance of the Notes. In addition, (i) on the Class A-1 Final Maturity Date,
or on the related Distribution Date following a sale of the Financed Student
Loans in the manner described in "--Termination," the principal required to be
distributed to Class A-1 Noteholders will include the amount required to
reduce the outstanding principal balance of the Class A-1 Notes to zero and
(ii) on the Class A-2 Final Maturity Date, or on the related Distribution Date
following a sale of the Financed Student Loans in the manner described in "--
Termination," the principal required to be distributed to the Class A-2
Noteholders will include the amount required to reduce the outstanding
principal balance of the Class A-2 Notes to zero.
"Principal Distribution Adjustment" means, with respect to any Distribution
Date, the amount of Available Funds on such Distribution Date to be used to
make additional principal distributions to Noteholders (and, after the Notes
have been paid in full, Certificateholders) to account for (i) the amount of
any insignificant balance remaining outstanding as of such Distribution Date
on a Financed Student Loan after receipt of a final payment from a borrower or
Guarantor, when such insignificant balances are waived in the ordinary course
of business by the Master Servicer at the direction of the Administrator in
accordance with the Master Servicing Agreement or (ii) the amount of principal
collections erroneously treated as interest collections including, without
limitation, by reason of the failure by a borrower to capitalize interest that
had been expected to be capitalized; provided, however, that the Principal
Distribution Adjustment for any Distribution Date shall not exceed the lesser
of (x) $100,000 and (y) the Reserve Account Excess, if any, remaining after
giving effect to all distributions to be made on such Distribution Date other
than distributions to the Seller out of such excess.
"Principal Distribution Amount" means, with respect to any Distribution
Date, the sum of the following amounts with respect to the related Collection
Period: (i) that portion of all collections received by the Master Servicer on
the Financed Student Loans that is allocable to principal (including the
portion of any Guarantee Payments received that is allocable to principal of
the Financed Student Loans) less, if such Collection Period is after the end
of the Funding Period, the sum of (x) any such collections which are applied
by the Trust during such Collection Period to purchase Serial Loans and (y)
accrued and unpaid interest on the Financed Student Loans for such Collection
Period to the extent such interest is not currently being paid but will be
capitalized upon commencement of repayment of such Financed Student Loans;
(ii) all Liquidation Proceeds attributable to the principal amount of Financed
Student Loans which became Liquidated Student Loans during such Collection
Period in accordance with the Master Servicer's customary servicing
procedures, together with all Realized Losses on such Financed Student Loans;
(iii) to the extent attributable to principal, the Purchase Amount received
with respect to each Financed Student Loan repurchased by the Seller or
purchased by the Master Servicer as a result of a breach of a representation,
warranty or covenant under an obligation which arose during the related
Collection Period; (iv) the aggregate amount deposited in the Collection
Account following a sale of the Financed Student Loans in the manner described
under "--Termination;" (v) the portion allocable to principal of any
compensatory payments made by the Seller due to incentive programs offered to
borrowers under the Financed Student Loans and (vi) the Principal Distribution
Adjustment, if any, provided, however, that the Principal Distribution Amount
will exclude all payments and proceeds (including Liquidation Proceeds) of any
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<PAGE>
Financed Student Loans the Purchase Amount of which has been included in
Available Funds for a prior Collection Period.
"Realized Losses" means the excess of the principal balance of the
Liquidated Student Loans over Liquidation Proceeds to the extent allocable to
principal.
CREDIT ENHANCEMENT
Reserve Account. Pursuant to the Administration Agreement and the Loan Sale
Agreement, the Reserve Account will be created with an initial deposit by the
Seller on the Closing Date of cash or Eligible Investments in an amount equal
to the Reserve Account Initial Deposit. The Reserve Account will be augmented
on each Distribution Date by the deposit therein of the amount, if any, of
Available Funds remaining after payment of the Servicing Fee and all overdue
Servicing Fees, the Administration Fee and all overdue Administration Fees,
the Noteholders' Distribution Amount and the Certificateholders' Distribution
Amount, all for such Distribution Date. See "--Distributions" herein. As
described below, subject to certain limitations, amounts on deposit in the
Reserve Account will be released to the Seller to the extent that the amount
on deposit in the Reserve Account exceeds the Specified Reserve Account
Balance for such date.
"Specified Reserve Account Balance" with respect to any Distribution Date
means the greater of:
(a) 1.5% of the sum of the Pool Balance and the Pre-Funded Amount as of
the close of business on the last day of the related Collection Period; and
(b) $4,211,430; provided, however, that the Specified Reserve Account
Balance shall in no event exceed the sum of the outstanding principal
amount of the Notes and the outstanding principal balance of the
Certificates.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits thereto or withdrawals made therefrom in
respect of shortfalls in distributions required to be made from Available
Funds on such Distribution Date) is greater than the Specified Reserve Account
Balance for such Distribution Date, subject to certain limitations, the
Administrator will instruct the Indenture Trustee to distribute the amount of
such excess (the "Reserve Account Excess") to the following (in the priority
indicated): (i) to the payment of the unpaid principal amount of the Notes and
the Certificates, in the order of priority set forth herein, until the unpaid
principal balance of the Notes and the Certificates equals the Pool Balance
plus the Pre-Funded Amount at the close of business of the last day of the
related Collection Period (ii) to the Noteholders, the aggregate unpaid amount
of any Noteholders' Interest LIBOR Carryover, (iii) to the Certificateholders,
the aggregate unpaid amount of any Certificateholders' Interest LIBOR
Carryover, (iv) if such Distribution Date is on or after the January 2007
Distribution Date and the Pool Balance on such Distribution Date is equal to
10% or less of the sum of the Initial Pool Balance plus the Initial Pre-Funded
Amount, to the payment of the unpaid principal balance of the Notes and
Certificates, in the order of priority set forth herein, and (v) to the Seller
and the Company, 99% and 1%, respectively, of any such excess after the
payment of clauses (i) through (iv) above, and, upon such payment to the
Seller and the Company, the Noteholders and the Certificateholders will not
have any rights in, or claims to, such amounts. As described in clause (i) of
this paragraph, Reserve Account Excess, if any, will be applied to reduce the
aggregate principal amount of the Notes and Certificates on each Distribution
Date until the Distribution Date on which such aggregate principal amount no
longer exceeds the sum of the Pool Balance plus the Pre-Funded Amount as of
the close of business on the last day of the related Collection Period. As of
the Closing Date, the aggregate principal balance of the Notes and the
Certificates will equal approximately 101.73% of the sum of the Initial Pool
Balance and the Initial Pre-Funded Amount. See "Risk Factors--Issuance of
Securities in an Aggregate Principal Balance that Exceeds the Initial Pool
Balance plus the Initial Pre-Funded Amount". All distributions of principal on
the Notes and the Certificates as described in clauses (i) and (iv) of this
paragraph shall be allocated to the Class A-1 Notes until the principal
balance of the Class A-1 Notes has been reduced to zero, then to the Class A-2
Notes until the principal balance of the Class A-2 Notes has been reduced to
zero and then to the Certificates until the principal balance of the
Certificates has been reduced to zero.
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<PAGE>
Subject to the limitation described in the preceding paragraph, amounts held
from time to time in the Reserve Account will continue to be held for the
benefit of the Trust. Funds will be withdrawn from cash in the Reserve Account
on (a) each Interest Payment Date that is not a Distribution Date and on each
Distribution Date prior to the January 2000 Distribution Date to cover any
shortfalls (in the priority indicated) of payments of (i) the Servicing Fee
and all overdue Servicing Fees, (ii) the Administration Fee and all overdue
Administration Fees, (iii) the Noteholders' Interest Distribution Amount and
(iv) the Certificateholders' Interest Distribution Amount and (b) any
Distribution Date on or after the January 2000 Distribution Date to cover any
shortfalls (in the priority indicated) of payments of any of the items
specified in clauses (i) through (vi) respectively, of the second paragraph
under "--Distributions--Distributions from Collection Account" herein, in each
case, to the extent that Available Funds for such Distribution Date (or
Monthly Available Funds for such Interest Payment Date) are insufficient to
make such payments and distributions. Such funds will be paid from the Reserve
Account to the persons and in the order of priority specified for
distributions out of the Collection Account on such dates. As a result of the
subordination of the Certificates to the Notes described elsewhere herein,
however, any amounts that the Certificateholders would otherwise receive from
the Reserve Account in respect of the Certificateholders' Interest
Distribution Amount on an Interest Payment Date will be paid to Noteholders
until the Noteholders' Interest Distribution Amount for such Interest Payment
Date has been paid in full.
The Reserve Account is intended to enhance the likelihood of timely receipt
by the Noteholders and the Certificateholders of the full amount of principal
and interest due them and to decrease the likelihood that the Noteholders or
the Certificateholders will experience losses. In certain circumstances,
however, the Reserve Account could be depleted. If the amount required to be
withdrawn from the Reserve Account to cover shortfalls in the amount of
Monthly Available Funds or Available Funds, as the case may be, exceeds the
amount of cash in the Reserve Account, Noteholders or Certificateholders could
incur losses or a temporary shortfall in the amount of principal and interest
distributed to the Noteholders or the Certificateholders could result which
could, in turn, increase the average life of the Notes or the Certificates.
Moreover, amounts on deposit in the Reserve Account, other than certain
amounts constituting Reserve Account Excess, if any, will not be available to
cover any aggregate unpaid Noteholders' Interest LIBOR Carryover or
Certificateholders' Interest LIBOR Carryover.
Subordination of the Certificates. The rights of Certificateholders to
receive payments of interest are subordinated to the rights of the Noteholders
to receive payments of interest and the rights of the Certificateholders to
receive payments of principal are subordinated to the rights of the
Noteholders to receive payments of interest and principal to the extent of the
Noteholders' Principal Distribution Amount. This subordination is intended to
increase the likelihood of timely receipt by the Noteholders of the maximum
amount of interest and principal to which they are entitled to receive on any
Interest Payment Date or Distribution Date. The Certificateholders will not be
entitled to any payments of principal until the Notes are paid in full. See
"Description of the Securities--The Certificates--Subordination of the
Certificates" herein.
INSOLVENCY EVENT
If an Insolvency Event occurs with respect to the Company, the Financed
Student Loans will be liquidated and the Trust will be terminated 90 days
after the date of such Insolvency Event, unless, before the end of such 90-day
period, the related Eligible Lender Trustee shall have received written
instructions from (i) the holders of each class of Notes representing more
than 50% of the aggregate unpaid principal amount of each such class of Notes
and (ii) the holders of the Certificates (other than the Seller or the
Company) representing more than 50% of the aggregate unpaid principal amount
thereof (not including the principal amount of Certificates held by the Seller
or the Company), in each case to the effect that each such group disapproves
of the liquidation of the Financed Student Loans and termination of the Trust.
Promptly after the occurrence of an Insolvency Event with respect to the
Company, notice thereof is required to be given such Noteholders and
Certificateholders; provided, however, that any failure to give such required
notice will not prevent or delay termination of the Trust. Upon termination of
the Trust, the Eligible Lender Trustee will direct the Indenture Trustee
promptly to sell the assets of the Trust (other than the Trust Accounts) in a
commercially reasonable manner and on commercially
S-53
<PAGE>
reasonable terms. The proceeds from any such sale, disposition or liquidation
of the Financed Student Loans will be treated as collections thereon and
deposited in the Collection Account. If the proceeds from the liquidation of
the Financed Student Loans and any amounts on deposit in the Reserve Account,
if any, available therefor are not sufficient to pay the Notes and the
Certificates in full, the amount of principal returned to such Noteholders and
Certificateholders will be reduced and some or all of such Noteholders and
such Certificateholders will incur a loss. "Insolvency Event" means, with
respect to any Person, any of the following events or actions: certain events
of insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings with respect to such Person and certain actions by such
Person indicating its insolvency, reorganization pursuant to bankruptcy
proceedings or inability to pay its obligations. Notwithstanding the
foregoing, if the Company provides the Indenture Trustee and the Eligible
Lender Trustee an opinion of special tax counsel in form and substance
satisfactory to the Indenture Trustee and the Eligible Lender Trustee that the
foregoing provisions are not necessary for the Trust to be treated as a
partnership for federal income and Maryland state tax purposes, then such
provisions shall be of no force or effect as of the date of the delivery of
such opinion.
COMPANY LIABILITY
Under the Trust Agreement, the Company will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder
in the capacity of an investor with respect to the Trust) arising out of or
based on the arrangement created by the Trust Agreement as though such
arrangement created a partnership under the Delaware Revised Uniform Limited
Partnership Act in which such Company was a general partner. Notwithstanding
the foregoing, if the Company provides the Indenture Trustee and the Eligible
Lender Trustee an opinion of Tax Counsel in form and substance satisfactory to
the Indenture Trustee and the Eligible Lender Trustee that the foregoing
provisions are not necessary for the Trust to be treated as a partnership for
federal income and Maryland state tax purposes, then such provisions shall be
of no force or effect as of the date of the delivery of such opinion.
TERMINATION
Certain information regarding termination of the Trust is set forth in
"Description of the Transfer and Servicing Agreements--Termination" in the
Prospectus.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the January 2007 Distribution Date
will be offered for sale by the Indenture Trustee. The Seller, its affiliates
and unrelated third parties may offer bids to purchase such Financed Student
Loans on such Distribution Date. If at least two bids are received, the
Indenture Trustee will accept the highest bid equal to or in excess of the
greater of (x) the Purchase Amount of such Financed Student Loans as of the
end of the Collection Period immediately preceding such Distribution Date or
(y) an amount that would be sufficient to (i) reduce the outstanding principal
amount of each class of Notes then outstanding on such Distribution Date to
zero, (ii) pay to the Noteholders the Noteholders' Interest Distribution
Amount payable on such Distribution Date, if any, (iii) reduce the Certificate
Balance of the Certificates on such Distribution Date to zero, (iv) pay to the
Certificateholders the Certificateholders' Interest Distribution Amount
payable on such Distribution Date, if any, (v) pay the Noteholders the then
outstanding Noteholders' Interest LIBOR Carryover, if any, and (vi) pay the
Certificateholders the then outstanding Certificateholders' Interest LIBOR
Carryover, if any (the "Minimum Purchase Price"). If at least two bids are not
received or the highest bid is not equal to or in excess of the Minimum
Purchase Price for the Financed Student Loans, the Indenture Trustee will not
consummate such sale. The proceeds of any such sale will be used to redeem any
outstanding Notes and to retire any outstanding Certificates on such
Distribution Date. If the sale is not consummated in accordance with the
foregoing, the Indenture Trustee may, but shall not be under any obligation
to, solicit bids to purchase the Financed Student Loans on future Distribution
Dates upon terms similar to those described above. No assurance can be given
as to whether the Trustee will be successful in soliciting acceptable bids to
purchase the Financed Student Loans on
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either the January 2007 Distribution Date or any subsequent Distribution Date.
OPTIONAL REDEMPTION
The Seller may at its option purchase from the Eligible Lender Trustee, as
of the end of any Collection Period immediately preceding a Distribution Date,
if the then outstanding Pool Balance is 10% or less of the sum of the Initial
Pool Balance plus the Initial Pre-Funded Amount, all Financed Student Loans at
a price equal to the Minimum Purchase Price as of the end of such Collection
Period, which amounts will be used to retire the Notes and Certificates
concurrently therewith. Upon termination of the Trust, all right title and
interest in the Financed Student Loans and other funds of the Trust, after
giving effect to any final distributions to Noteholders and Certificateholders
therefrom, will be conveyed and transferred to the Seller.
FEDERAL INCOME TAX AND STATE TAX CONSEQUENCES
In the opinion of Tax Counsel, the Trust will not constitute an association
(or a publicly traded partnership) taxable as a corporation and the Notes will
constitute indebtedness for federal income tax purposes. Furthermore, Tax
Counsel is of the opinion that the discussions herein under "Federal Income
Tax and State Tax Consequences" and in the Prospectus under "Federal Income
Tax Consequences" and "State Tax Consequences" are correct in all material
respects.
The stated interest on the Notes will be taxable to a Noteholder as ordinary
income when received or accrued in accordance with such Noteholder's method of
tax accounting. It is not anticipated that the Trust will treat the Notes as
issued with "original issue discount" within the meaning of Section 1273 of
the Code ("OID"), because the Trust intends to treat the stated interest as a
"qualified floating rate" for OID purposes. However, it is unclear how the
Noteholders' Interest LIBOR Carryover will be included in income. Therefore,
the Noteholders may be required to accrue such amount in income in advance of
the receipt of cash with respect to such amount regardless of whether such
Noteholders are on the cash or accrual methods of accounting. Furthermore, the
regulations pertaining to OID could be read as requiring that the stated
interest be treated as "contingent interest" for purposes of computing OID. A
holder who purchases a Note at a discount that exceeds a statutorily defined
de minimis amount will be subject to the "market discount" rules of the Code.
A holder who purchases a Note at a premium will be subject to the premium
amortization rules of the Code.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each Interest Period equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such Interest
Period, including interest at the Certificate Rate for such Interest Period
and interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust income attributable to discount on Student Loans
that corresponds to any excess of the principal amount of the Certificates
over their initial issue price; and (iii) all other amounts of income payable
to the Certificateholders for such Interest Period. All remaining taxable
income of the Trust will be allocated to the Seller. Based on the economic
arrangement of the parties, this approach for allocating Trust income should
be permissible under applicable Treasury regulations, although no assurance
can be given that the IRS would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
allocation, Certificateholders may be allocated income equal to the entire
amount of interest accruing on the Certificates for an Interest Period, based
on the Certificate Rate plus the other items described above, even though the
Trust might not have sufficient cash to make current cash distributions of
such amount. Thus, cash basis holders will in effect be required to report
income from the Certificates on the accrual basis and Certificateholders may
become liable for taxes on Trust income even if they have not received cash
from the Trust to pay such taxes. Furthermore, Certificateholders may be
required to accrue the Certificateholder's Interest LIBOR Carryover in advance
of the receipt of cash with respect to such carryover, regardless of whether
such Certificateholders are on the cash or accrual method of accounting. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all
S-55
<PAGE>
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Prospective purchasers should see "Federal Income Tax Consequences" and
"State Tax Consequences" in the Prospectus for a discussion of the application
of certain additional federal income tax laws and certain state tax laws to
the Trust and the Securities.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to ERISA or Section 4975 of the Code. A
fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975 of
the Code. Employee benefit plans which are governmental plans (as defined in
Section 3(33) of ERISA) are not subject to the fiduciary responsibility or
prohibited transaction provisions of ERISA or the Code.
THE CERTIFICATES
The Certificates may not be purchased by a Plan or by any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity (each, a "Benefit Plan"). Such purchase of an equity interest in the
Trust will result in the assets of the Trust being deemed assets of a Benefit
Plan for the purposes of ERISA and the Code, and certain transactions
involving the Trust may then be deemed to constitute prohibited transactions
under Section 406 of ERISA and Section 4975 of the Code. A violation of the
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons. By its acceptance
of a Certificate, each Certificateholder will be deemed to have represented
and warranted that it is not a Benefit Plan.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
dated , 1996 relating to the Notes (the "Note Underwriting Agreement"),
the Seller has agreed to cause the Trust to sell to each of the Class A-1 Note
Underwriters and the Class A-2 Note Underwriters named below (collectively,
the "Note Underwriters"), and each of the Note Underwriters has severally
agreed to purchase, the principal amount of Notes set forth opposite its name
below:
CLASS A-1 NOTES
<TABLE>
<CAPTION>
CLASS A-1 NOTE UNDERWRITERS PRINCIPAL AMOUNT
- --------------------------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................... $
Goldman, Sachs & Co. ..........................................
----
Total........................................................ $
====
</TABLE>
CLASS A-2 NOTES
<TABLE>
<CAPTION>
CLASS A-2 NOTE UNDERWRITERS PRINCIPAL AMOUNT
- --------------------------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................... $
Goldman, Sachs & Co. ..........................................
----
Total........................................................ $
====
</TABLE>
In addition, Signet will directly offer $ and $ principal amount of the
Class A-1 Notes and the Class A-2 Notes, respectively. Neither Signet nor any
affiliate of Signet will make a market in the Notes.
The Note Underwriters and the Signet propose initially to offer the Notes to
the public initially at the public offering prices set forth on the cover page
of this Prospectus Supplement, and the Note Underwriters may offer the Notes
to certain dealers at such prices less a concession of % per Class A-1 Note
and % per Class A-2 Note. The Note Underwriters may allow, and such dealers
may reallow a discount of % per Class A-1 Note and % per Class A-2 Note
on sale to certain other dealers. After the initial public offering of the
Notes, the public offering prices and the concessions and discounts to dealers
may be changed by the Note Underwriters.
Subject to the terms and conditions set forth in an Underwriting Agreement
dated , 1996 relating to the Certificates (the "Certificate Underwriting
Agreement" and, together with the Note Underwriting Agreement, the
"Underwriting Agreements"), the Seller has agreed to cause the Trust to sell
to each of the Certificate Underwriters named below (the "Certificate
Underwriters" and, together with the Note Underwriters, the "Underwriters"),
and each of the Certificate Underwriters has severally agreed to purchase, the
principal amount of Certificates set forth opposite its name below:
<TABLE>
<CAPTION>
CERTIFICATE UNDERWRITERS PRINCIPAL AMOUNT
- ------------------------ ----------------
<S> <C>
Credit Suisse First Boston Corporation......................... $
----
Total........................................................ $
====
</TABLE>
Signet will not directly offer the Certificates. Neither Signet nor any
affiliate of Signet will make a market in the Certificates.
S-57
<PAGE>
The Seller has also agreed to pay Credit Suisse First Boston Corporation a
structuring fee equal to $ .
The Certificate Underwriters and Signet propose initially to offer the
Certificates to the public initially at the public offering price set forth on
the cover page of this Prospectus Supplement, and the Certificate Underwriters
may offer the Certificates to certain dealers at such price less a concession
of % per Certificate. The Certificate Underwriters may allow, and such
dealers may reallow a discount of % per Certificate on sale to certain
other dealers. After the initial public offering of the Certificates, the
public offering price and the concession and discount to dealers may be
changed by the Certificate Underwriters.
The Underwriting Agreements provide that the Seller will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or contribute to payments which the Underwriters may be
required to make in respect thereof.
The Trust may, from time to time in the ordinary course of business, but is
under no obligation to, invest the funds in the Trust Accounts in Eligible
Investments acquired from the Underwriters.
The Underwriters have agreed to reimburse Signet for a portion of Signet's
expenses.
The closing of the sale of the Certificates is conditioned on the closing of
the sale of the Notes and the closing of the sale of the Notes is conditioned
on the closing of the sale of the Certificates.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may engage in investment banking
and/or commercial banking transactions with the Seller and its affiliates.
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon for the
Trust, the Seller, the Master Servicer and the Administrator by McGuire,
Woods, Battle & Boothe, L.L.P., Richmond, Virginia and for the Underwriters by
Brown & Wood LLP, New York, New York. Certain federal and Maryland income and
corporate tax matters and other matters will be passed upon for the Trust by
McGuire, Woods, Battle & Boothe, L.L.P.
S-58
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Notes of
Signet Student Loan Trust 1996-A (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such
Global Securities through any of DTC, Cedel or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their Participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriter. Investor securities
custody accounts will be credited with their holdings against payment in same-
day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
S-59
<PAGE>
Trading between DTC Seller and Cedel or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of the actual number
of days in such accrual period and year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will
then be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from,
the value date (which would be the preceding day when settlement occurred in
New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as
of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each Cedel Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Cedel or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last interest payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft
S-60
<PAGE>
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date of the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL WITHHOLDING TAXES AND DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business in
the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements
and (ii) such beneficial owners take one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain
an exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Noteholder or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global Security
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
S-61
<PAGE>
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source (except, with respect to the tax year of any trust
that begins after December 31, 1996, a trust whose administration is subject
to the primary supervision of a United States court and which has one or more
United States fiduciaries who have authority to control all substantial
decisions of the trust). This summary of documentation requirements does not
deal with all aspects of U.S. Federal income tax withholding that may be
relevant to foreign holders of the Global Securities. Investors are advised to
consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities. See, also, "Federal Tax
Consequences--Tax Consequences to Holders of the Notes--Foreign Holders" in
the Prospectus.
S-62
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Act.................................................................. S-28
Additional Fundings.................................................. S-7
Additional Student Loans............................................. S-4, S-47
Administration Agreement............................................. S-3
Administration Fee................................................... S-12
Administrator........................................................ S-3
Applicable Trustee................................................... S-43
Available Funds...................................................... S-48
Benefit Plan......................................................... S-56
Cede................................................................. S-2
Cedel................................................................ S-3
Cedel Participants................................................... S-43
Certificate Balance.................................................. S-50
Certificate LIBOR Rate............................................... S-16
Certificate Rate..................................................... S-16
Certificate Underwriters............................................. S-57
Certificate Underwriting Agreement................................... S-57
Certificateholders................................................... S-16
Certificateholders' Distribution Amount.............................. S-50
Certificateholders' Interest Carryover Shortfall..................... S-50
Certificateholders' Interest Distribution Amount..................... S-50
Certificateholders' Interest LIBOR Carryover......................... S-16
Certificateholders' Principal Carryover Shortfall.................... S-50
Certificateholders' Principal Distribution Amount.................... S-50
Certificates......................................................... S-1, S-3
Citibank............................................................. S-44
Class A-1 Final Maturity Date........................................ S-15, S-40
Class A-1 LIBOR Rate................................................. S-13
Class A-1 Noteholders................................................ S-13
Class A-1 Notes...................................................... S-1, S-3
Class A-1 Rate....................................................... S-12, S-39
Class A-2 Final Maturity Date........................................ S-15, S-40
Class A-2 LIBOR Rate................................................. S-13
Class A-2 Noteholders................................................ S-13
Class A-2 Notes...................................................... S-1, S-3
Class A-2 Rate....................................................... S-12, S-39
Closing Date......................................................... S-4
Collection Account................................................... S-7
Collection Period.................................................... S-7
Commission........................................................... S-2
Company.............................................................. S-4
Cooperative.......................................................... S-44
Cutoff Date.......................................................... S-4
Deferral............................................................. S-32
Department........................................................... S-2
Depositary........................................................... S-44
</TABLE>
S-63
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Determination Date................................................... S-48
Distribution Date.................................................... S-2
DOE Data Book........................................................ S-36
DTC.................................................................. S-2, S-3
ECMC................................................................. S-2, S-4
Eligible Lender Trustee.............................................. S-1, S-3
ERISA................................................................ S-20
Euroclear............................................................ S-3
Euroclear Participants............................................... S-44
Euroclear Operator................................................... S-44
Exchange Act......................................................... S-2
Expected Interest Collections........................................ S-13
FFELP................................................................ S-28
Final Maturity Date.................................................. S-17, S-41
Financed Student Loans............................................... S-1, S-4
Forbearance.......................................................... S-32
Funding Period....................................................... S-7, S-46
Global Securities.................................................... S-59
Grace................................................................ S-32
Guarantor............................................................ S-2, S-4
In-School............................................................ S-32
Indenture............................................................ S-12
Indenture Trustee.................................................... S-3
Index Maturity....................................................... S-42
Indirect Participants................................................ S-43
Initial Financed Student Loans....................................... S-4
Initial Pool Balance................................................. S-4
Initial Pre-Funded Amount............................................ S-7, S-46
Insolvency Event..................................................... S-54
Interest Payment Date................................................ S-2, S-13
Interest Period...................................................... S-13
LIBOR................................................................ S-42
LIBOR Determination Date............................................. S-42
Liquidated Student Loans............................................. S-48
Liquidation Proceeds................................................. S-48
Loan Purchase Amount................................................. S-46
Loan Sale Agreement.................................................. S-4
Master Servicer...................................................... S-3
Master Servicing Agreement........................................... S-3
Minimum Purchase Price............................................... S-54
Monthly Available Funds.............................................. S-48
Monthly Collection Period............................................ S-48
Monthly Rebate Fee................................................... S-46
Morgan............................................................... S-44
Note Interest Rates.................................................. S-12
Note Underwriters.................................................... S-57
Note Underwriting Agreement.......................................... S-57
Noteholders.......................................................... S-13
Noteholders' Distribution Amount..................................... S-50
Noteholders' Interest Carryover Shortfall............................ S-50
Noteholders' Interest Distribution Amount............................ S-50
Noteholders' Interest LIBOR Carryover................................ S-14
Noteholders' Principal Carryover Shortfall........................... S-51
</TABLE>
S-64
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Noteholders' Principal Distribution Amount............................ S-51
Notes................................................................. S-1, S-3
Obligors.............................................................. S-19
OID................................................................... S-55
Participants.......................................................... S-43
Plan.................................................................. S-56
Pool Balance.......................................................... S-18
Pre-Funded Amount..................................................... S-7, S-46
Pre-Funding Account................................................... S-7, S-46
Principal Distribution Adjustment..................................... S-51
Principal Distribution Amount......................................... S-51
Purchase Amount....................................................... S-19
Realized Losses....................................................... S-52
Record Date........................................................... S-13
Reference Banks....................................................... S-43
Repayment............................................................. S-32
Reserve Account....................................................... S-8
Reserve Account Excess................................................ S-9
Reserve Account Excess................................................ S-9, S-52
Reserve Account Initial Deposit....................................... S-8
Rules................................................................. S-43
SEAA.................................................................. S-35
Secretary............................................................. S-35
Securities............................................................ S-2
Securityholders....................................................... S-16
Seller................................................................ S-1, S-3
Serial Loan........................................................... S-5
Servicing Fee......................................................... S-11
Signet................................................................ S-2
Specified Reserve Account Balance..................................... S-52
Student Loan Rate..................................................... S-13
Student Loan Rate Accrual Period...................................... S-13
Student Loans......................................................... S-4
Subsequent Cutoff Date................................................ S-47
Tax Counsel........................................................... S-19
Telerate Page 3750.................................................... S-43
Terms and Conditions.................................................. S-44
TGSLC................................................................. S-2, S-4
Transfer Agreement.................................................... S-5, S-47
Transfer and Servicing Agreements..................................... S-45
Transfer Date......................................................... S-47
Trust................................................................. S-1, S-3
Trust Agreement....................................................... S-4
U.S. Person........................................................... S-62
USAF.................................................................. S-2, S-4
Underwriters.......................................................... S-57
Underwriting Agreements............................................... S-57
</TABLE>
S-65
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT +
+SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY +
+NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED DECEMBER 17, 1996
PROSPECTUS
THE SIGNET STUDENT LOAN TRUSTS
ASSET-BACKED NOTES
ASSET-BACKED CERTIFICATES
----------
SIGNET BANK
SELLER AND MASTER SERVICER
----------
The Asset-Backed Notes (the "Notes") and the Asset-Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described herein
may be sold from time to time in one or more series, in amounts, at prices and
on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement"). Each series of
Securities, which will include one or more classes of Notes and one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "Trust"). Each Trust will be formed pursuant to a Trust
Agreement to be entered into among Signet Bank, as seller of the Student Loans
(as defined below) ("Signet" or the "Seller"), an affiliate of the Seller
specified in the related Prospectus Supplement (the "Company"), and the
Eligible Lender Trustee specified in the related Prospectus Supplement (the
"Eligible Lender Trustee"). The Notes of each series will be issued and secured
pursuant to an Indenture between the Trust and the Indenture Trustee specified
in the related Prospectus Supplement (the "Indenture Trustee") and will
represent indebtedness of the related Trust. The Certificates of a series will
represent fractional undivided interests in the related Trust. The property of
each Trust will include education loans to students and parents of dependent
students (the "Student Loans"), and certain monies due or received thereunder
on and after the applicable Cutoff Date set forth in the related Prospectus
Supplement, all as described herein and in the related Prospectus Supplement.
Each class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related Student
Loans, at the rates, on the dates and in the manner described herein and in the
related Prospectus Supplement. The right of each class of Securities to receive
payments may be senior or subordinate to the rights of one or more of the other
classes of such series. Distributions on Certificates of a series may be
subordinated in priority to payments due on the related Notes to the extent
described herein and in the related Prospectus Supplement. A series may include
one or more classes of Notes and Certificates which differ as to the timing and
priority of payment, interest rate or amount of distributions in respect of
principal or interest or both. The rate of payment in respect of principal of
the Notes and distributions in respect of the Certificate Balance of the
Certificates of any class will depend on the priority of payment of such class
and the rate and timing of payments (including prepayments, defaults, guarantee
payments, liquidations, recoveries and repurchases of Student Loans) on the
related Student Loans. A rate of payment lower or higher than that anticipated
may affect the weighted average life of each class of Securities in the manner
described herein and in the related Prospectus Supplement.
----------
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF
SUCH SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED
BY THE SELLER, THE MASTER SERVICER, THE ADMINISTRATOR, ANY SUBSERVICER, ANY
GUARANTOR OR ANY AFFILIATE THEREOF. NEITHER THE NOTES NOR THE CERTIFICATES ARE
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
----------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" HEREIN BEGINNING ON PAGE 15 AND IN THE RELATED PROSPECTUS SUPPLEMENT
AT PAGE S-21.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-TIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is December , 1996
<PAGE>
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered hereby. This Prospectus, which forms part of the
Registration Statement, does not contain all the information contained
therein. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; and at the Commission's regional offices at Seven World Trade Center,
New York, New York 10048, and 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies of the Registration Statement may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site at http://www. sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Seller,
that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Treasury Department, Signet
Banking Corporation, 7 North Eighth Street, Richmond, Virginia 23219
(Telephone: (804) 771-7060).
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY OF TERMS.......................................................... 6
RISK FACTORS.............................................................. 15
Failure to Comply with Student Loan Origination and Servicing Procedures
for Federal Student Loans.............................................. 15
Failure to Comply with Student Loan Origination and Servicing Procedures
for Private Student Loans.............................................. 15
Variability of Actual Cash Flows........................................ 16
Inability of Related Indenture Trustee to Liquidate Student Loans....... 16
Unsecured Nature of Student Loans; Financial Status of Federal
Guarantor.............................................................. 16
Default Risk on Certain Student Loans................................... 17
Fees Payable on Certain Financed Student Loans Prior to Distributions on
the Securities......................................................... 17
Change in Law........................................................... 17
Subordination of the Certificates....................................... 18
Limited Assets of the Trust............................................. 18
Use of the Pre-Funding Account or Collateral Reinvestment Account to
Make Additional Fundings; Changes in Characteristics of the Student
Loan Pool.............................................................. 18
Yield and Prepayment Considerations..................................... 18
Servicer Default........................................................ 19
Consolidation of Federal Benefit Billings and Receipts with Other
Trusts................................................................. 20
Certain Legal Aspects................................................... 20
Book-Entry Registration................................................. 22
FORMATION OF THE TRUSTS................................................... 22
The Trusts.............................................................. 22
Eligible Lender Trustee................................................. 22
USE OF PROCEEDS........................................................... 23
THE SELLER, THE MASTER SERVICER AND THE SUBSERVICERS...................... 23
The Seller and the Master Servicer...................................... 23
The Subservicers........................................................ 23
ASSUMPTION OF SIGNET'S OBLIGATIONS........................................ 23
THE STUDENT LOAN POOLS.................................................... 24
General................................................................. 24
Origination and Marketing Process....................................... 25
Servicing and Collections Process....................................... 25
Claims and Recovery Rates............................................... 26
FEDERAL FAMILY EDUCATION LOAN PROGRAM..................................... 26
General................................................................. 26
Legislative and Administrative Matters.................................. 27
Eligible Lenders, Students and Educational Institutions................. 28
Financial Need Analysis................................................. 29
Special Allowance Payments.............................................. 29
Federal Stafford Loans.................................................. 30
Interest.............................................................. 30
Interest Subsidy Payments............................................. 30
Loan Limits........................................................... 31
</TABLE>
3
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<TABLE>
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Repayment.............................................................. 32
Grace Periods, Deferral Periods, Forbearance Periods................... 32
Federal Unsubsidized Stafford Loans...................................... 32
Federal PLUS and Federal SLS Loan Programs............................... 32
Loan Limits............................................................ 33
Interest............................................................... 33
Repayment, Deferments.................................................. 33
Federal Consolidation Loan Program....................................... 34
Federal Guarantors....................................................... 35
Federal Insurance and Reinsurance of Federal Guarantors.................. 35
PRIVATE STUDENT AND OTHER LOAN PROGRAMS.................................... 37
WEIGHTED AVERAGE LIFE OF THE SECURITIES.................................... 37
POOL FACTORS AND TRADING INFORMATION....................................... 38
DESCRIPTION OF THE NOTES................................................... 38
General.................................................................. 38
Principal and Interest on the Notes...................................... 39
The Indenture............................................................ 40
Modification of Indenture.............................................. 40
Events of Default; Rights Upon Event of Default........................ 40
Certain Covenants...................................................... 42
Annual Compliance Statement............................................ 43
Indenture Trustee's Annual Report...................................... 43
Satisfaction and Discharge of Indenture................................ 43
The Indenture Trustee.................................................. 43
DESCRIPTION OF THE CERTIFICATES............................................ 43
General.................................................................. 43
Principal and Interest in Respect of the Certificates.................... 44
CERTAIN INFORMATION REGARDING THE SECURITIES............................... 44
Fixed Rate Securities.................................................... 44
Floating Rate Securities................................................. 45
Book-Entry Registration.................................................. 45
Definitive Securities.................................................... 46
List of Securityholders.................................................. 47
Reports to Securityholders............................................... 47
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS....................... 47
General.................................................................. 47
Sale of Student Loans; Representations and Warranties.................... 48
Additional Fundings...................................................... 49
Accounts................................................................. 49
Servicing Procedures..................................................... 50
Payments on Student Loans................................................ 51
Servicer Covenants....................................................... 51
Servicer Compensation.................................................... 52
Distributions............................................................ 52
Credit and Cash Flow Enhancement......................................... 53
General................................................................ 53
Reserve Account........................................................ 53
Statements to Indenture Trustee and Trust................................ 53
Evidence as to Compliance................................................ 54
</TABLE>
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Certain Matters Regarding the Master Servicer............................ 55
Servicer Default......................................................... 55
Rights Upon Servicer Default............................................. 55
Waiver of Past Defaults.................................................. 56
Amendment................................................................ 56
Payment of Notes......................................................... 57
Termination.............................................................. 57
Optional Redemption.................................................... 57
Auction of Student Loans............................................... 57
Administration Agreement................................................. 57
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS................................. 58
Transfer of Student Loans................................................ 58
Certain Matters Relating to Receivership................................. 59
Consumer Protection Laws................................................. 60
Loan Origination and Servicing Procedures Applicable to Student Loans.... 60
Student Loans Generally Not Subject to Discharge In Bankruptcy........... 61
FEDERAL INCOME TAX CONSEQUENCES............................................ 61
Tax Characterization of the Trust........................................ 61
Tax Consequences to Holders of the Notes................................. 62
Treatment of the Notes as Indebtedness................................. 62
Original Issue Discount................................................ 62
Interest Income on the Notes........................................... 62
Sale or Other Disposition.............................................. 63
Foreign Holders........................................................ 63
Backup Withholding..................................................... 64
Possible Alternative Treatments of the Notes........................... 64
Tax Consequences to Holders of the Certificates.......................... 64
Treatment of the Trust as a Partnership................................ 64
Partnership Taxation................................................... 65
Computation of Income.................................................. 65
Determining the Bases of Trust Assets.................................. 66
Discount and Premium................................................... 66
Disposition of Certificates............................................ 66
Allocations Between Transferors and Transferees........................ 67
Section 754 Election................................................... 67
Administrative Matters................................................. 67
Tax Consequences to Foreign Certificateholders......................... 68
Backup Withholding..................................................... 68
STATE TAX CONSEQUENCES..................................................... 68
Tax Consequences with Respect to the Notes............................... 69
Tax Consequences with Respect to the Certificates........................ 69
ERISA CONSIDERATIONS....................................................... 69
The Notes................................................................ 69
The Certificates......................................................... 69
PLAN OF DISTRIBUTION....................................................... 70
LEGAL MATTERS.............................................................. 70
INDEX OF PRINCIPAL TERMS................................................... 71
</TABLE>
5
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this
Prospectus are defined elsewhere herein on the pages indicated in the "Index of
Principal Terms."
Issuer...................... With respect to each series of Securities, the
trust to be formed pursuant to a Trust Agreement
(as amended and supplemented from time to time, a
"Trust Agreement") among the Seller, the Company
and the Eligible Lender Trustee for such Trust
(the "Trust" or the "Issuer").
Seller...................... Signet Bank, a Virginia banking corporation
("Signet"), as seller (the "Seller"). See
"Assumption of Signet's Obligations".
Master Servicer............. Signet, as master servicer on behalf of the Trust
(the "Master Servicer") pursuant to a Master
Servicing Agreement (as amended and supplemented
from time to time, the "Master Servicing
Agreement") among the Trust, the Master Servicer
and the Eligible Lender Trustee. See "The Seller,
the Master Servicer and the Subservicers" and
"Description of the Transfer and Servicing
Agreements--Servicing Procedures".
Eligible Lender Trustee..... For each trust, such entity as is specified as
the Eligible Lender Trustee in the related
Prospectus Supplement.
Indenture Trustee........... With respect to each series of Securities, the
Indenture Trustee specified in the related
Prospectus Supplement.
Administrator............... Signet in its capacity as administrator (the
"Administrator").
The Notes................... Each series of Securities will include one or
more classes of Notes, which will be issued
pursuant to an Indenture between the Trust and
the related Indenture Trustee (as amended and
supplemented from time to time, an "Indenture").
Notes will be available for purchase in
denominations of $1,000 and integral multiples
thereof and will be available in book-entry form
only or as provided in the Prospectus Supplement.
Noteholders will be able to receive Definitive
Notes only in the limited circumstances described
herein or in the related Prospectus Supplement.
See "Certain Information Regarding the
Securities--Definitive Securities".
Each class of Notes will have a stated principal
amount and will bear interest at a specified rate
or rates (with respect to each class of Notes,
the "Interest Rate"). Each class of Notes may
have a different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate, or
any combination of the foregoing. The related
Prospectus Supplement will specify the Interest
Rate for each class of Notes, or the method for
determining the Interest Rate.
6
<PAGE>
With respect to a series that includes two or
more classes of Notes, each class may differ as
to timing and priority of payments, seniority,
allocations of losses, Interest Rate or amount of
payments of principal or interest, or payments of
principal or interest in respect of any such
class or classes may or may not be made upon the
occurrence of specified events.
The Certificates............ Each series of Securities may include one or more
classes of Certificates which will be issued
pursuant to the related Trust Agreement.
Certificates will be available for purchase in
denominations of $1,000 and in integral multiples
thereof and will be available in book-entry form
or as provided in the Prospectus Supplement.
Certificateholders will be able to receive
Definitive Certificates only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities--Definitive Securities".
Each class of Certificates will have a stated
Certificate Balance specified in the related
Prospectus Supplement (the "Certificate Balance")
and will accrue interest on such Certificate
Balance at a specified rate (with respect to each
class of Certificates, the "Pass-Through Rate").
Each class of Certificates may have a different
Pass-Through Rate, which may be a fixed, variable
or adjustable Pass-Through Rate or any
combination of the foregoing. The related
Prospectus Supplement will specify the Pass-
Through Rate for each class of Certificates or
the method for determining the Pass- Through
Rate.
With respect to a series that includes two or
more classes of Certificates, each class may
differ as to timing and priority of
distributions, seniority, allocations of losses,
Pass-Through Rate or amount of distributions in
respect of principal or interest, or
distributions in respect of principal or interest
in respect of any such class or classes may or
may not be made upon the occurrence of specified
events. Distributions in respect of the
Certificates may be subordinated in priority of
payment to payments on the Notes, if so provided
in the Prospectus Supplement.
Assets of the Trust......... The assets of each Trust will include a pool of
student loans consisting of education loans to
students and parents of dependent students
("Student Loans"), which will include rights to
receive payments made with respect to such
Student Loans and the proceeds thereof. On or
prior to the Closing Date specified in the
related Prospectus Supplement with respect to a
Trust (a "Closing Date"), the Seller will sell
Student Loans having an aggregate principal
balance specified in the related Prospectus
Supplement as of the date specified therein (a
"Cutoff Date"), to the Eligible Lender Trustee on
behalf of the Trust pursuant to a Loan Sale
Agreement (as amended and supplemented from time
to time, a "Loan Sale
7
<PAGE>
Agreement") among the Seller, the related Trust
and the related Eligible Lender Trustee. The
property of each Trust will also include amounts
on deposit in certain trust accounts, including
the related Collection Account, any Reserve
Account, any Pre-Funding Account, any Collateral
Reinvestment Account and any other account
identified in the applicable Prospectus
Supplement. In addition, no Trust will be
established for which, on the Cutoff Date for
such Trust, more than 15% of the related Student
Loans by principal balance are between 31 and 90
days delinquent.
The Student Loans sold to any Trust will be
selected from Student Loans owned by the Seller
based on criteria specified in the applicable
Loan Sale Agreement and described herein and in
the related Prospectus Supplement.
Unless otherwise specified in the applicable
Prospectus Supplement, each Student Loan sold to
any Trust will, subject to compliance with
specific origination and servicing procedures
prescribed by federal and guarantor regulations,
be guaranteed as to the payment of principal and
interest by either (i) a state or private non-
profit guarantor (each, a "Federal Guarantor"),
which agency is reinsured by the United States
Department of Education (the "Department") for
between 80% and 100% of the amount of default
claims paid by such Federal Guarantor for a given
federal fiscal year for loans disbursed prior to
October 1, 1993, for 78% to 98% of default claims
paid for loans disbursed on or after October 1,
1993, and for 100% of death, disability,
bankruptcy, closed school and false certification
claims paid ("Federal Student Loans"), (ii) a
state or private guarantor (each, a "Private
Guarantor" and together with the Federal
Guarantors, the "Guarantors") that is not
reinsured by the Department ("Private Student
Loans") or (iii) a system of self- insurance
(items (ii) and (iii) collectively, "Private
Student Loans"). Amounts paid by a Guarantor
pursuant to its guarantee are herein referred to
as "Guarantee Payments". See "Federal Family
Education Loan Program--Federal Guarantors", "--
Federal Insurance and Reinsurance of Federal
Guarantors" and "Private Student Loan Programs".
If so provided in the related Prospectus
Supplement, during the period (the "Funding
Period") from the Closing Date until the first to
occur of (i) the amount on deposit in the Pre-
Funding Account being less than an amount
specified in the related Prospectus Supplement,
(ii) an Event of Default occurring under the
Indenture, a Servicer Default occurring under the
Master Servicing Agreement or an Administrator
Default occurring under the Administration
Agreement, (iii) certain events of insolvency
occurring with respect to the Seller or (iv) the
last day of the Collection Period preceding a
Distribution Date specified in the related
Prospectus Supplement, an account will be
maintained in the name of the Indenture Trustee
(the "Pre-Funding Account"). The amount on
deposit in the Pre-Funding Account (the "Pre-
Funded Amount") on the Closing Date will equal an
amount specified in the related Prospectus
Supplement (which will be deposited out of the
net proceeds of the sale of the related
Securities) and, during the Funding Period, will
be reduced from time to time by the amount
thereof used to make Additional Fundings.
8
<PAGE>
In addition, if so provided in the related
Prospectus Supplement, in lieu of a Funding
Period, during the period (the "Revolving
Period") from the Closing Date until the first to
occur of (i) an event described in clauses (ii)
or (iii) of the preceding paragraph or of such
additional event or events as are described in
the related Prospectus Supplement as having such
effect (each, an "Early Amortization Event") or
(ii) the last day of the Collection Period
preceding a Distribution Date specified in the
related Prospectus Supplement, an account will be
maintained in the name of the Indenture Trustee
(the "Collateral Reinvestment Account"). The
amount on deposit in the Collateral Reinvestment
Account on the Closing Date may, if so specified
in the related Prospectus Supplement, include an
amount specified in the related Prospectus
Supplement (which will be deposited out of the
net proceeds of the sale of the related
Securities) and, during the Revolving Period
principal will not be distributed on the
Securities of the related series and principal
collections, together with (if and to the extent
described in the related Prospectus Supplement)
interest collections on the Student Loans to be
distributed therefrom, will be deposited from
time to time in the Collateral Reinvestment
Account and will be used to make Additional
Fundings.
Additional Fundings will consist of one or more
of the following, in each case if and to the
extent specified in the related Prospectus
Supplement: (i) interest payments to Noteholders
and Certificateholders in lieu of collections of
interest on certain of the Student Loans to the
extent such interest is not paid currently but
will be capitalized and added to the principal
balance upon commencement of repayment of such
Student Loans; (ii) payments to purchase from the
Seller during a Funding Period or a Revolving
Period certain additional Student Loans made to
borrowers who have existing Student Loans that
are part of the pool of Student Loans of a series
as of the Cutoff Date ("Existing Borrowers") and,
in the case of a Revolving Period, made to
borrowers which may include, but will not be
limited to, borrowers who at the time of such
purchase by the Trust have existing Student Loans
that are part of such pool; and (iii) payments to
fund the origination by the related Trust under
certain circumstances of certain additional
Student Loans. If so provided in the related
Prospectus Supplement, Additional Fundings may
continue to occur after the Funding Period or
Revolving Period. Additional Fundings occurring
after the Funding Period or Revolving Period will
be funded from distributions on the related
Student Loans in the manner specified in the
related Prospectus Supplement. See "Description
of the Transfer and Servicing Agreements--
Additional Fundings".
The Higher Education Act.... To the extent Student Loans to be sold by the
Seller to a Trust consist of Federal Student
Loans originated pursuant to the Federal Family
Education Loan Program under the Higher Education
Act of 1965, as amended (the "Act"), such Student
Loans will be guaranteed as to the payment of
principal and interest by a state or private non-
profit
9
<PAGE>
guarantor. The Federal Guarantors each have
reinsurance contracts with the Secretary of the
Department of Education. The Department
reimburses to the Federal Guarantors claims paid
by the Federal Guarantors. The amount of such
reinsurance payment is calculated annually and is
subject to reduction based upon the annual claims
rate of the Federal Guarantor to the Department
calculated to equal the amount of federal
reimbursement as a percentage of the original
principal amount of guaranteed loans held by such
Federal Guarantor in repayment on the last day of
the prior fiscal year. Regardless of the level of
reinsurance that the applicable Federal Guarantor
receives from the Department, the Eligible Lender
Trustee, on behalf of each Trust, will continue
to be entitled to reimbursement for the
applicable guaranteed portion of a Federal
Student Loan (either 98% or 100%, as applicable)
from such Federal Guarantor. The obligations of
the Federal Guarantors to the holders of Federal
Student Loans, such as the Eligible Lender
Trustee, on behalf of each Trust, are payable
from the general funds available to each such
Federal Guarantor, including cash on deposit
therewith, reimbursements received from the
Department and reserve funds maintained by the
Federal Guarantors as required by the Act. The
Act provides that, subject to the provisions
thereof, including the proper origination and
servicing of Federal Student Loans, a Federal
Guarantor has a contractual right to reinsurance
payments by the Department. In addition, the Act
provides that if the Department determines that a
Federal Guarantor is unable to meet its insurance
obligations to holders of Federal Student Loans,
such as the Eligible Lender Trustee, on behalf of
each Trust, then the holders of Federal Student
Loans guaranteed by such Federal Guarantor may
submit guarantee claims directly to the
Department and the Department is required to pay
to the holders the full insurance obligation of
such Federal Guarantor until such time as the
obligations are transferred by the Department to
a new Federal Guarantor capable of meeting such
obligations or until a qualified successor
assumes such obligations. There can be no
assurance that the Department would ever make
such a determination with respect to a Federal
Guarantor or, if such a determination was made,
whether such determination or the ultimate
payment of such guarantee claims would be made in
a timely manner. In addition, failure to properly
originate or service a Student Loan can cause a
Student Loan to lose its guarantee. See "Risk
Factors--Failure to Comply with Student Loan
Origination and Servicing Procedures for Federal
Student Loans" and "--Unsecured Nature of Federal
Student Loans; Financial Status of Federal
Guarantor" herein and "Federal Family Educational
Loan Program" herein for a more complete
description of the Act.
Credit and Cash Flow
Enhancement................. Credit or cash flow enhancement with respect to a
Trust or any class or classes of Securities may
include any one or more of the following:
subordination of one or more other classes of
Securities, a Reserve Account, over-
collateralization, letters of credit, credit or
10
<PAGE>
liquidity facilities, surety bonds, guaranteed
investment contracts, repurchase obligations,
other agreements with respect to third-party
payments or other support, cash deposits or other
arrangements. Any form of credit or cash flow
enhancement may have certain limitations and
exclusions from coverage thereunder, which will
be described in the related Prospectus
Supplement.
Reserve Account............. An account in the name of the related Indenture
Trustee (the "Reserve Account") may be
established and maintained by the Administrator
with the Indenture Trustee in accordance with the
directions of the Administrator and will be an
asset of the applicable Trust, as described in
the Prospectus Supplement. To the extent
specified in the related Prospectus Supplement,
the Seller will make an initial deposit into the
Reserve Account on the Closing Date having a
value equal to the amount specified in the
Prospectus Supplement (the "Reserve Account
Initial Deposit"); the Reserve Account Initial
Deposit will be augmented on each Distribution
Date by the deposit into the Reserve Account of
any remaining Available Funds for such
Distribution Date. See "Description of the
Transfer and Servicing Agreements--Distributions"
in the related Prospectus Supplement.
Amounts in the Reserve Account will be available
to cover shortfalls in amounts due to the holders
of those classes of Securities specified in the
related Prospectus Supplement in the manner and
under the circumstances specified herein and
therein. The related Prospectus Supplement will
also specify to whom and the manner and
circumstances under which amounts on deposit in
the Reserve Account (after giving effect to all
other required distributions to be made by the
applicable Trust) in excess of the Specified
Reserve Account Balance (as defined in the
related Prospectus Supplement) will be
distributed.
Transfer and Servicing
Agreements.................. With respect to each Trust, the Seller will sell
the related Student Loans to such Trust pursuant
to a Loan Sale Agreement, with the related
Eligible Lender Trustee holding legal title
thereto. The rights and benefits of such Trust
and the Eligible Lender Trustee under the Loan
Sale Agreement will be assigned to the Indenture
Trustee as collateral for the Notes of the
related series. Pursuant to a Master Servicing
Agreement among the related Trust, the Master
Servicer and the Eligible Lender Trustee (the
"Master Servicing Agreement"), the Master
Servicer will agree with such Trust to be
responsible for servicing, managing and
maintaining the custody of, and making
collections on, the Student Loans and preparing
and filing with the Department and the applicable
Federal Guarantor all appropriate claim forms and
other documents and filings on behalf of the
Eligible Lender Trustee in order to claim the
Interest Subsidy Payments and Special Allowance
Payments from the Department in respect of the
Federal Student Loans entitled thereto. Subject
to the terms and conditions of the Master
Servicing Agreement, the Master
11
<PAGE>
Servicer may delegate certain of its obligations
under the Master Servicing Agreement to one or
more student loan servicers (each a
"Subservicer"), but no such delegation shall
relieve the Master Servicer from its
responsibilities to service the Student Loans as
if it alone were servicing the Student Loans. See
"The Seller, the Master Servicer and the
Subservicers" and "Description of the Transfer
and Servicing Agreements--Servicing Procedures"
herein.
The Seller will be obligated under the related
Loan Sale Agreement to repurchase, and the Master
Servicer will be obligated under the related
Master Servicing Agreement to purchase, to the
extent specified in the related Prospectus
Supplement, any Student Loan if the interest of
such Trust therein is materially and adversely
affected by a breach of any representation,
warranty or covenant (including the Master
Servicer's covenant to service all the Student
Loans in accordance with applicable laws,
restrictions and guidelines) made by the Seller
or the Master Servicer, as the case may be, with
respect to the Student Loans, if the breach has
not been cured within 120 days following the
discovery by or notice to the Seller or Master
Servicer, as the case may be, of the breach (it
being understood that any such breach that does
not affect any Guarantor's obligation to
guarantee payment of such Student Loan will not
be considered to have a material adverse effect
for this purpose). In the event that Notes of any
series remain outstanding and there is a dispute
regarding whether the interests of the related
Trust are materially and adversely affected by
any such breach, the determination as to whether
the interests of such Trust are so affected will
be made by the Indenture Trustee. In such event,
the determination of the Indenture Trustee will
be dispositive. In the event only Certificates
remain outstanding, any such determination will
be made by the Eligible Lender Trustee and its
determination will be dispositive. In addition,
if so specified in the related Prospectus
Supplement, the Seller or the Master Servicer, as
the case may be, will be obligated to reimburse
such Trust for any accrued interest amounts not
guaranteed by a Guarantor due to, or any Interest
Subsidy Payments or Special Allowance Payments
lost as a result of a breach of the Seller's
representations and warranties or the Master
Servicer's covenants, as the case may be, with
respect to any Student Loan. The liability of the
Seller or the Master Servicer, as the case may
be, will not exceed the amount that the Guarantor
would have paid if the Student Loan had been
accepted and paid by the Guarantor as a claim.
The Master Servicer will receive a fee (the
"Servicing Fee") equal to a specified percentage
of the Pool Balance, as set forth in the related
Prospectus Supplement, together with any other
administrative fees and similar charges specified
in the related Prospectus Supplement. The
Servicing Fee will be payable out of Available
Funds and amounts on deposit in the Reserve
Account on the date specified in the related
Prospectus Supplement. See "Description of the
Transfer and Servicing Agreements--Servicing
Compensation" herein and in the related
Prospectus Supplement.
12
<PAGE>
In addition, the Administrator will undertake
certain administrative duties with respect to
such Trust under an Administration Agreement
among the Trust, the Administrator and the
Indenture Trustee (as amended and supplemented
from time to time, the "Administration
Agreement"). See "Description of the Transfer and
Servicing Agreements--Administration Agreement".
Termination................. The obligations of the Seller, the Master
Servicer, the Administrator, the Eligible Lender
Trustee and the Indenture Trustee relating to a
particular trust will terminate upon the latest
of (i) the maturity or other liquidation of the
last Student Loan in such Trust and the
disposition of any amount received upon
liquidation of any such remaining Student Loans
or (ii) the payment to the Noteholders and the
Certificateholders of the related series of all
amounts required to be paid to them. See
"Description of the Transfer and Servicing
Agreements--Termination".
Optional Redemption......... If the Seller exercises its option to purchase
the Student Loans of a Trust in the manner and on
the respective terms and conditions described
under "Description of the Transfer and Servicing
Agreements--Termination--Optional Redemption",
the outstanding Notes will be redeemed and the
Certificateholders will receive a distribution as
set forth in the related Prospectus Supplement.
Such a prepayment of the Notes or the
Certificates could have an effect on the yield
realized thereon. See "Risk Factors--Yield and
Prepayment Considerations".
Mandatory Redemption........ If specified in the applicable Prospectus
Supplement, to the extent that amounts on deposit
in the Pre-Funding Account or Collateral
Reinvestment Account for a series have not been
fully applied to Additional Fundings by the Trust
by the end of the Funding Period or Revolving
Period, respectively, the related Noteholders or
the Certificateholders may receive as a
prepayment of principal an amount equal to the
amount remaining in the Pre-Funding Account or
Collateral Reinvestment Account following any
Additional Fundings on the last Distribution Date
in such period. See "Description of the Notes--
Principal and Interest on the Notes" and
"Description of the Certificates--Principal and
Interest in Respect of the Certificates".
Auction of Student Loans.... If so provided in the related Prospectus
Supplement, all remaining Student Loans held by a
Trust will be offered for sale by the Indenture
Trustee on any Distribution Date occurring on or
after a date specified in such Prospectus
Supplement. The Seller, affiliates of the Seller
and unrelated third parties may offer bids for
such Student Loans. The Indenture Trustee will
accept the highest bid equal to or in excess of
the aggregate Purchase Amounts of such Student
Loans as of the end of the Collection Period
immediately preceding the related Distribution
Date. The proceeds of such sale will be used to
redeem all related Notes and to retire the
Certificates. See "Description of the Transfer
and Servicing Agreements--Termination--Auction of
Student Loans".
13
<PAGE>
Tax Considerations.......... Upon the issuance of each series of Securities,
except as otherwise provided in the related
Prospectus Supplement, McGuire, Woods, Battle &
Boothe, L.L.P., as special federal and state tax
counsel to the applicable Trust ("Tax Counsel"),
will deliver an opinion to the effect that, for
federal income tax purposes: (i) the Notes of
such series will be characterized as debt and
(ii) the Trust will not be characterized as an
association (or a publicly traded partnership)
taxable as a corporation.
Unless otherwise specified in the applicable
Prospectus Supplement, each Noteholder, by the
acceptance of a Note of a given series, will
agree to treat such Note as indebtedness, and
each Certificateholder, by the acceptance of a
Certificate of a given series, will agree to
treat the related Trust as a partnership in which
such Certificateholder is a partner for federal
income and state and local income tax and
franchise tax purposes. Alternative
characterizations of such Trust and such
Certificates are possible, but would not result
in materially adverse tax consequences to
Certificateholders.
Due to the method of allocation of Trust income
to the Certificateholders, cash basis holders
may, in effect, be required to report income from
the Certificates on an accrual basis. In
addition, because tax allocations and tax
reporting will be done on a uniform basis, but
Certificateholders may be purchasing Certificates
at different times and at different prices,
Certificateholders may be required to report on
their tax returns taxable income that is greater
or less than the amount reported to them by the
Trust.
The Trust with respect to each series of
Securities will be established under the laws of
the state specified in the related Prospectus
Supplement and (except in certain circumstances
described under "Assumption of Signet's
Obligations") will be managed by the
Administrator in the State of Maryland. See
"Federal Income Tax Consequences" for additional
information concerning the application of federal
tax laws with respect to the Notes and the
Certificates.
ERISA Considerations........ Subject to the considerations discussed under
"ERISA Considerations" herein and unless
otherwise specified in the related Prospectus
Supplement, the Notes of each series are eligible
for purchase by employee benefit plans.
The Certificates may not be acquired by any
employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or by any individual
retirement account. See "ERISA Considerations"
herein.
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RISK FACTORS
Failure to Comply with Student Loan Origination and Servicing Procedures for
Federal Student Loans. The Federal Family Education Loan Program ("FFELP")
under Title IV of the Higher Education Act of 1965, as amended (such Act,
together with all rules and regulations promulgated thereunder by the
Department and/or the Guarantors, the "Act"), including the implementing
regulations thereunder, requires lenders making and servicing student loans
and guarantors guaranteeing student loans to follow specified procedures,
including due diligence procedures, to ensure that the student loans are
properly made and disbursed to, and repaid on a timely basis by or on behalf
of, borrowers. Certain of those procedures, which are specifically set forth
in the Act, are summarized herein. See "The Student Loan Pools--Servicing and
Collection Procedures", "Federal Family Education Loan Program" and
"Description of the Transfer and Servicing Agreements--Servicing Procedures".
Failure of the Master Servicer to follow the proper servicing procedures or
failure of the originator of the loan to follow procedures relating to the
origination of any Federal Student Loans may result in the Department's
refusal to make reinsurance payments to the Federal Guarantor or to make
Interest Subsidy Payments and Special Allowance Payments to the related
Eligible Lender Trustee with respect to such Federal Student Loans or in the
Federal Guarantor's refusal to honor its Guarantee Agreements with the related
Eligible Lender Trustee with respect to such Federal Student Loans (each a
"Guarantee Agreement" and collectively, the "Guarantee Agreements"). See
"Formation of the Trusts--Eligible Lender Trustee". Failure of the Federal
Guarantor to receive reinsurance payments from the Department could adversely
affect the Federal Guarantor's ability or legal obligation to make Guarantee
Payments to the related Eligible Lender Trustee. Loss of any such Guarantee
Payments, Interest Subsidy Payments or Special Allowance Payments could
adversely affect the amount of Available Funds for any Collection Period and
the Trust's ability to pay principal and interest on the related Notes and
Certificates.
If a breach of the representations, warranties or covenants of the Seller or
the Master Servicer, as the case may be, with respect to a Federal Student
Loan has a material adverse effect on the interest of the related Trust
therein and such breach is not cured within any applicable cure period, such
Trust will have the right under the related Loan Sale Agreement and Master
Servicing Agreement to cause the Seller to repurchase, or the Master Servicer
to purchase, such Federal Student Loan. In addition, each Trust will have the
right, under certain circumstances specified in the related Loan Sale
Agreement and Master Servicing Agreement, to cause the Seller or the Master
Servicer, as the case may be, to reimburse such Trust for any accrued interest
amounts not guaranteed by a Federal Guarantor, or any Interest Subsidy
Payments and Special Allowance Payments lost with respect to a Federal Student
Loan as a result of a breach of the Seller's representations and warranties or
the Master Servicer's covenants, as the case may be, with respect to such
Federal Student Loan. The repurchase and reimbursement obligations of the
Seller and the Master Servicer will constitute the sole remedy available to or
on behalf of a Trust, the related Certificateholders or the related
Noteholders for any such uncured breach. See "Description of the Transfer and
Servicing Agreements--Sale of Student Loans; Representations and Warranties"
and "--Servicer Covenants". There can be no assurance, however, that the
Seller will have the financial resources, or the Master Servicer will have the
ability, to meet these obligations. The failure of the Seller to so
repurchase, or the Master Servicer to purchase, a Federal Student Loan would
constitute a breach of the related Loan Sale Agreement and Master Servicing
Agreement, enforceable by the related Eligible Lender Trustee on behalf of
such Trust and the related Certificateholders or by the related Indenture
Trustee on behalf of the Noteholders of the related series, but would not
constitute an Event of Default under each indenture or permit the exercise of
remedies thereunder.
Failure to Comply with Student Loan Origination and Servicing Procedures for
Private Student Loans. Private Student Loans may be self-insured or insured by
a third-party Private Guarantor. The programs under which Private Student
Loans will be insured by third parties may prescribe rules and procedures
applicable to originating and servicing Private Student Loans, which
procedures will be similar to those set forth above with respect to Federal
Student Loans. Failure to make or service properly a Private Student Loan in
accordance
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with those procedures could adversely affect the Eligible Lender Trustee's
ability to obtain Guarantee Payments from a Private Guarantor. Loss of such
Guarantee Payments could adversely affect the amount of Available Funds for
any Collection Period and the Trust's ability to pay principal and interest on
the Notes and the Certificates. Under certain circumstances the Trust has the
right, pursuant to the related Loan Sale Agreement or Master Servicing
Agreement, as applicable, to cause the Seller to repurchase, or the Master
Servicer to purchase, a Private Student Loan. See "Description of the Transfer
and Servicing Agreements--Sale of Student Loans; Representations and
Warranties" and "--Servicer Covenants". There can be no assurance, however,
that the Seller or the Master Servicer will have the financial resources to do
so.
Variability of Actual Cash Flows. Amounts received with respect to the
Student Loans for a particular Collection Period may vary greatly in both
timing and amount from the payments actually due on the Student Loans as of
such Collection Period for a variety of economic, social and other factors,
including both individual factors, such as additional periods of deferral or
forbearance prior to or after a borrower's commencement of repayment, and
general factors, such as a general economic downturn which could increase the
amount of defaulted Student Loans. Failures by borrowers to pay timely the
principal and interest on the Student Loans will affect the amount of
Available Funds on a Distribution Date, which may reduce the amount of
principal and interest paid to the holders of the Securities of the related
series on such Distribution Date. Moreover, failures by student loan borrowers
generally to pay timely the principal and interest due on their student loans
could obligate the respective Guarantor to make payments thereon, which could
adversely affect the solvency of the Guarantor and its ability to meet its
guarantee obligations (including with respect to the Student Loans). The
inability of any Guarantor to meet its guarantee obligations could reduce the
amount of principal and interest paid to the holders of the Securities of the
related series on a Distribution Date. The effect of such factors, including
the effect on a Guarantor's ability to meet its guarantee obligations with
respect to the Student Loans, on a Trust's ability to pay principal and
interest with respect to the Securities, is impossible to predict. Pursuant to
the Higher Education Amendments of 1992 (the "1992 Amendments"), under Section
432(o) of the Act if the Department has determined that a Federal Guarantor is
unable to meet its insurance obligations, the loan holder may submit claims
directly to the Department and the Department is required to pay the full
Guarantee Payment due with respect thereto in accordance with guarantee claim
processing standards no more stringent than those of the Federal Guarantor.
However, the Department's obligation to pay guarantee claims directly in this
fashion is contingent upon the Department making the determination referred to
above. There can be no assurance that the Department would ever make such a
determination with respect to a Federal Guarantor or, if such a determination
was made, whether such determination or the ultimate payment of such guarantee
claims would be made in a timely manner.
Inability of Related Indenture Trustee to Liquidate Student Loans. If an
Event of Default occurs under the related Indenture, subject to certain
conditions, the related Indenture Trustee is authorized, without the consent
of the Certificateholders of the related series, to sell the Student Loans
pledged thereunder. There can be no assurance, however, that the related
Indenture Trustee will be able to find a purchaser for the Student Loans in a
timely manner or that the market value of such Student Loans will be equal to
the aggregate outstanding principal amount of the Securities and accrued
interest thereon. If the proceeds of any such sale, together with amounts then
available in any Reserve Account or pursuant to any other credit enhancement
specified as being available therefor in the related Prospectus Supplement, do
not equal or exceed the aggregate outstanding principal amount of Notes and
accrued interest thereon, the Noteholders of the related series will suffer a
loss. In such circumstances, the Certificateholders, to the extent the
Certificates of such series are subordinated to the Notes of such series, will
also suffer a loss.
Unsecured Nature of Student Loans; Financial Status of Federal
Guarantor. The Act and the programs under which Private Student Loans are
insured require all Student Loans to be unsecured. As a result, the only
security for payment of the Student Loans are the Guarantee Agreements between
the related Eligible Lender Trustee and the Guarantors. A deterioration in the
financial status of the Guarantors and their ability to honor guarantee claims
with respect to the Student Loans could result in a failure by the Guarantor
to make Guarantee Payments to such Eligible Lender Trustee. One of the primary
causes of a possible deterioration in a Guarantor's
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financial status is the amount and percentage of defaulting Student Loans
guaranteed by a Federal Guarantor. Moreover, to the extent that default
reimbursement claims submitted by a Federal Guarantor for any fiscal year
exceed certain specified levels, the Department's obligation to reimburse the
Federal Guarantor for default claim losses is reduced on a sliding scale from
100% to a minimum of 80% (98% to 78%, respectively, for default claim losses
for Federal Student Loans made on or after October l, 1993). Death,
disability, bankruptcy, closed school and false certification claims are
reimbursed 100% by the Department. Private Guarantors are not entitled to any
federal reinsurance or assistance from the Department. Although each Private
Guarantor maintains a loan loss reserve intended to absorb losses arising from
its guarantee commitments, there can be no assurance that the amount of such
reserve will be sufficient to cover the obligations of such Private Guarantor
over the term of Private Student Loans insured by a Private Guarantor. No
assurance exists that any Guarantor will have the financial resources to make
all Guarantee Payments to a given Trust in respect of the related Student
Loans that may arise from time to time. See "The Federal Family Education Loan
Program--Guarantors" and "--Federal Insurance and Reinsurance of Federal
Guarantors".
Default Risk on Certain Student Loans. Under the Omnibus Budget
Reconciliation Act of 1993, Student Loans first disbursed on or after October
1, 1993 are 98% insured by the applicable Guarantor. As a result, to the
extent a borrower of such a Student Loan defaults, the Trust will experience a
loss of 2% of outstanding principal and accrued interest on each such Student
Loan and a reduction in the funds which would otherwise be available to make
distributions on the Notes and the Certificates. A defaulted loan will be
fully assigned to the applicable Guarantor in exchange for a guarantee payment
on the 98% guaranteed portion and the Trust may have no right thereafter to
pursue the borrower for the 2% unguaranteed portion. Student Loans continue to
be 100% guaranteed in the event of death, disability or bankruptcy of the
borrower and a closing of or false certification by the borrower's school
regardless of disbursement date.
Fees Payable on Certain Financed Student Loans Prior to Distributions on the
Securities. Under the Federal Consolidation Program, the Trust will be
obligated to pay to the Department a monthly rebate fee (the "Monthly Rebate
Fee") at an annualized rate of 1.05% of the outstanding principal balance on
the last day of each month plus accrued interest thereon of each Federal
Consolidation Loan which is a part of the Trust, which rebate will be payable
prior to distributions to the Noteholders or the Certificateholders and which
rebate will reduce the amount of funds which would otherwise be available to
make distributions on the Securities and will reduce the Student Loan Rate. In
addition, if specified in the related Prospectus Supplement, the Trust or the
Eligible Lender Trustee may originate Federal Student Loans. In such cases,
the Trust may be required to pay to the Department a 0.50% origination fee
(the "Federal Origination Fee") on the initial principal balance of each
Student Loan which is originated on its behalf by the Eligible Lender Trustee
(i.e., each Federal Student Loan originated on its behalf by the Eligible
Lender Trustee), which fee will be deducted by the Department out of Interest
Subsidy and Special Allowance Payments. If sufficient Interest Subsidy and
Special Allowance Payments are not due to the Trust to cover the amount of the
Federal Origination Fee, the balance of such Federal Origination Fee will be
deferred by the Department until sufficient Interest Subsidy and Special
Allowance Payments accrue to cover such fee. If such amounts never accrue, the
Trust would be obligated to pay any remaining fee from other assets of the
Trust prior to making distributions to Noteholders or Certificateholders. The
offset of Interest Subsidy and Special Allowance Payments, and the payment of
any remaining fee from other Trust assets, will further reduce the amount of
available funds from which payments to Noteholders and Certificateholders may
be made. Furthermore, any offset of Interest Subsidy and Special Allowance
Payments will further reduce the Student Loan Rate as defined in the related
Prospectus Supplement.
Change in Law. No assurance can be made that the Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder will not be amended or modified in the future in a manner that will
adversely impact the programs described in this Prospectus and the guaranteed
student loans made thereunder, including the Student Loans, or the Guarantors.
In addition, existing legislation and future measures to reduce the federal
budget deficit or for other purposes may adversely affect the amount and
nature of federal financial assistance available with respect to these
programs or even abolish these programs. In recent years, federal budget
legislation has provided for the recovery of certain funds held by the Federal
Guarantors in order
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to achieve reductions in federal spending. No assurance can be made that
future federal budget legislation or administrative actions will not adversely
affect expenditures by the Department or the financial condition of the
Federal Guarantors. See "Federal Family Education Loan Program--Legislative
and Administrative Matters" and "--Federal Guarantors".
Subordination of the Certificates. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on the
Certificates of a series may be subordinated in priority of payment to
interest and principal due on the Notes of such series.
Limited Assets of the Trust. Each Trust will not have, nor is it permitted
or expected to have, any significant assets or sources of funds other than the
Student Loans and, to the extent provided in the related Prospectus
Supplement, a Reserve Account and any other credit enhancement. The Notes of
any series will represent obligations solely of, and the Certificates of such
series will represent interests solely in, the related Trust and neither the
Notes nor the Certificates of such series will be insured or guaranteed by the
Seller, the Master Servicer, the Administrator, any Federal Guarantor, any
Subservicer, the applicable Eligible Lender Trustee, the applicable Indenture
Trustee or any other person or entity. Consequently, holders of the Securities
of any series must rely for repayment upon payments on the related Student
Loans and, if and to the extent available, amounts on deposit in the Reserve
Account (if any) and other credit enhancement (if any), all as specified in
the related Prospectus Supplement.
Use of the Pre-Funding Account or Collateral Reinvestment Account to Make
Additional Fundings; Changes in Characteristics of the Student Loan Pool. The
use of a Pre-Funding Account or Collateral Reinvestment Account to add Student
Loans to a Trust after the applicable Closing Date will cause the aggregate
characteristics of the entire pool of Student Loans with respect to such
Trust, including, if and to the extent set forth in the related Prospectus
Supplement, the composition of such pool and in the case of a Revolving
Period, of the borrowers thereof, the applicable Guarantors thereof (if, as
may be so specified in the related Prospectus Supplement, the Guarantors with
respect to Student Loans added after the Closing Date may include Guarantors
other than those represented in such pool as of the Closing Date and named in
such Prospectus Supplement) and the distribution by loan type, interest rate,
principal balance and remaining term to stated maturity to vary, possibly
significantly, from those of the applicable pool as existing on the Closing
Date and described in the related Prospectus Supplement.
To the extent that amounts on deposit in the Pre-Funding Account or
Collateral Reinvestment Account for a series have not been fully applied to
Additional Fundings by the Trust by the end of the Funding Period or the
Revolving Period, the related Noteholders or Certificateholders may receive as
a prepayment of principal an amount equal to the amount remaining in the Pre-
Funding Account or Collateral Reinvestment Account following any Additional
Fundings on the last day of the final Collection Period in such applicable
period. It is anticipated that, in the case of each series, the amount of
Additional Fundings made by the Trust will not be exactly equal to the amount
on deposit in the Pre-Funding Account or Collateral Reinvestment Account and
that therefore there may be at least a nominal amount of principal prepaid to
the Noteholders or Certificateholders. See also "--Yield and Prepayment
Considerations" and "Risk Factors--Yield and Prepayment Considerations" in the
related Prospectus Supplement regarding the risk to Noteholders and
Certificateholders of prepayments in connection with the making of Federal
Consolidation Loans both during and after the Funding Period or Revolving
Period.
Yield and Prepayment Considerations. All the Student Loans are prepayable at
any time. (For this purpose the term "prepayments" includes prepayments in
full or in part (including pursuant to Federal Consolidation Loans) and
liquidations due to default (including receipt of Guarantee Payments). The
rate of prepayments on the Student Loans may be influenced by a variety of
economic, social and other factors affecting borrowers, including interest
rates and the availability of alternative financing. In addition, under
certain circumstances, the Seller will be obligated to repurchase or the
Master Servicer will be obligated to purchase Student Loans from the Trust
pursuant to the related Loan Sale Agreement or Master Servicing Agreement, as
a result of breaches of their respective representations, warranties or
covenants. See "Description of the Transfer and
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Servicing Agreements--Sale of Student Loans; Representations and Warranties"
and "--Servicer Covenants". Moreover, a borrower of Federal Student Loans may
elect to obtain a Federal Consolidation Loan to consolidate and refinance such
Federal Student Loans. The related Prospectus Supplement will describe whether
and under what circumstances such Trust may originate or acquire the resulting
Federal Consolidation Loan, if at all. No assurance can be made that borrowers
with Federal Student Loans will not seek to obtain Federal Consolidation Loans
with respect to such Federal Student Loans or, if they do so, that such
Federal Consolidation Loans will be held by the related Eligible Lender
Trustee on behalf of the Trust, if so permissible. See "The Federal Family
Education Loan Program".
The Federal Direct Consolidation Loan Program provides borrowers with the
opportunity to consolidate outstanding student loans at interest rates below,
and income-contingent repayment terms that some borrowers may find preferable
to, those that would be available from the Seller on a loan originated by the
Seller under the Federal Consolidation Loan Program. The availability of such
lower-rate, income-contingent loans may decrease the likelihood that the
Seller, if so permitted by the Transfer and Servicing Agreements, would be the
originator of a Consolidation Loan with respect to borrowers with Federal
Student Loans, as well as increase the likelihood that a Federal Student Loan
in the Trust will be prepaid through the issuance of a Federal Direct
Consolidation Loan.
On the other hand, scheduled payments with respect to, and maturities of,
the Student Loans may be extended as a result of Grace Periods, Deferral
Periods and, under certain circumstances, Forbearance Periods, which may
lengthen the remaining term of the Student Loans and the average life of the
Notes and the Certificates. See "The Federal Family Education Loan Program".
In addition, the Seller makes available to certain of its Student Loan
borrowers certain payment terms which may result in the lengthening of the
remaining terms of the Student Loans. For example, not all of the loans owned
by the Seller provide for level payments throughout the repayment term of the
loans. Certain of the loans provide for a "graduated phase-in" of the
amortization of principal with a greater portion of principal amortization
being required in the latter stages of the life of the loan than would be the
case if amortization were on a level payment basis. The Seller also offers an
income-sensitive repayment plan, pursuant to which repayments are based on the
borrower's income. Under that plan, ultimate repayment may be delayed up to
five years. Borrowers under the Financed Student Loans will continue to be
eligible for such graduated payment and income-sensitive repayment plans.
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Student Loans (or from the occurrence or non-occurrence of any
redemption of Securities or auction of Student Loans or the timing of any such
occurrence) will be borne entirely by the Noteholders and the
Certificateholders. Such reinvestment risks may include the risk that interest
rates and the relevant spreads above particular interest rate bases are lower
at the time Securityholders receive payments from the Trust than such interest
rates and such spreads would otherwise have been had such prepayments not been
made or had such prepayments been made at a different time. See also
"Description of the Transfer and Servicing Agreements--Insolvency Event"
regarding the sale of the Student Loans if an Insolvency Event occurs with
respect to the Company and "--Termination" regarding the Seller's option to
repurchase the Student Loans.
Noteholders and Certificateholders should consider, in the case of Notes or
Certificates, as the case may be, purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Student Loans (or
any anticipated redemption of the Securities or auction of the Student Loans
not occurring or occurring later than anticipated) could result in an actual
yield that is less than the anticipated yield and, in the case of Notes or
Certificates, as the case may be, purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the Student Loans (or
any anticipated redemption of the Securities or auction of the Student Loans
occurring earlier than anticipated or the occurrence of any unanticipated
redemption of the Securities or auction of the Student Loans) could result in
an actual yield that is less than the anticipated yield. See "Weighted Average
Life of the Securities".
Servicer Default. Unless otherwise specified in the related Prospectus
Supplement with respect to a given series of Securities, in the event of a
Servicer Default, the Indenture Trustee or 75% (by principal amount) of the
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Noteholders with respect to such series, as described under "Description of
the Transfer and Servicing Agreements--Rights upon Servicer Default," may
remove the Master Servicer without the consent of the Eligible Lender Trustee
or any of the Certificateholders with respect to such series. Moreover, only
the Indenture Trustee or the Noteholders with respect to such series, and not
the Eligible Lender Trustee or the Certificateholders, have the ability to
remove the Master Servicer if a Servicer Default occurs. In addition, the
Noteholders with respect to such series have the ability, with certain
specified exceptions, to waive defaults by the Master Servicer, including
defaults that could materially adversely affect the Certificateholders with
respect to such series. See "Description of the Transfer and Servicing
Agreements--Waiver of Past Defaults".
Consolidation of Federal Benefit Billings and Receipts with Other
Trusts. Due to a recent change in Department policy limiting the granting of
new lender identification numbers, the Eligible Lender Trustee is allowed
under the Trust Agreements to permit trusts established by the Seller to
securitize Student Loans to use a common Department lender identification
number. The billings submitted to the Department for Interest Subsidy and
Special Allowance Payments on loans in such Trusts will be consolidated with
the billings for such payments for Student Loans in such other Trusts using
the same lender identification number and payments on such billings will be
made by the Department in lump sum form. Such lump sum payments will then be
allocated among the various trusts using the lender identification number.
In addition, the sharing of the lender identification number by a Trust with
other Trusts may result in the receipt of claim payments by guarantors in lump
sum form. In that event, such payments would be allocated among the trusts in
a manner similar to the allocation process for Interest Subsidy and Special
Allowance Payments.
The Department regards the Eligible Lender Trustee as the party primarily
responsible to the Department for any liabilities owed to the Department or
guarantors resulting from the Eligible Lender Trustee's activities in the
FFELP. As a result, if the Department or a guarantor were to determine that
the Eligible Lender Trustee owes a liability to the Department or a guarantor
on any Student Loan for which the Eligible Lender Trustee is or was legal
titleholder, including loans held in a Trust, the Department or guarantor may
seek to collect that liability by offset against payments due the Eligible
Lender Trustee under such Trust. In the event that the Department or guarantor
determines such a liability exists in connection with a Trust using the shared
lender identification number, the Department or a guarantor would be likely to
collect that liability by offset against amounts due the Eligible Lender
Trustee under the shared lender identification number, including amounts owed
in connection with such Trusts.
In addition, Trusts using a shared lender identification number may in a
given quarter incur fees associated with the origination of Federal Student
Loans that exceed the Interest Subsidy and Special Allowance Payments payable
by the Department on the loans in such other Trusts, resulting in the
consolidated payment from the Department received by the Eligible Lender
Trustee under such lender identification number for that quarter equaling an
amount that is less than the amount owed by the Department on the loans in a
Trust for that quarter.
The Trust Agreement for trusts established by the Seller which will share
lender identification numbers will require such Trusts to indemnify the other
Trusts for a shortfall or an offset by the Department or a guarantor arising
from the Student Loans held by the Eligible Lender Trustee on such Trust's
behalf. Such indemnification may reduce the amount available to make
distributions on Securities issued by a particular Trust.
Certain Legal Aspects. The Seller will warrant to each Trust in the related
Loan Sale Agreement that the sale of the Student Loans by the Seller to such
Trust is a valid sale of the Student Loans by the Seller to such Trust.
Notwithstanding the foregoing, in the event of an insolvency of the Seller, it
is possible that a conservator or receiver for, or a creditor of, the Seller
may argue that each transaction between the Seller and a Trust was a pledge of
the related Student Loans in connection with a borrowing by the Seller rather
than a true sale. Such an attempt, even if unsuccessful, could result in
delays in distributions on the Securities. In addition, if the transfer of the
Student Loans to the Eligible Lender Trustee is deemed to create a security
interest therein, a tax or government lien on property of the Seller arising
before the Student Loans came into existence may have priority over the
Eligible Lender Trustee's interest in such Student Loans.
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The Seller is chartered under the laws of Virginia. In Virginia, the
Virginia State Corporation Commission (the "SCC"), which supervises and
examines the Seller, may apply to any Virginia court having jurisdiction over
the appointment of receivers to appoint a receiver upon determination that
certain events relating to the Seller's financial condition have occurred. The
SCC is authorized, but not required, to apply for the appointment of the
Federal Deposit Insurance Corporation ("FDIC") as receiver and, as a matter of
federal law, the FDIC would be authorized, but not obligated, to accept such
appointment. The SCC has informally indicated that it would seek to have the
FDIC appointed as receiver in any receivership proceeding involving a bank
such as the Seller. Virginia law sets forth certain powers that could be
exercised by the FDIC upon its appointment as receiver. There are no Virginia
statutory provisions governing the appointment of a conservator for a
Virginia-chartered bank.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") significantly expanded the powers of the FDIC as a conservator or
receiver of insolvent banks. To the extent that the Seller has granted a first
priority perfected security interest in the Student Loans to each Trust, and
the interest is validly perfected and was not taken in contemplation of
insolvency or with the intent to hinder, delay or defraud the Seller's
creditors, that security interest should not be subject to avoidance by the
FDIC as conservator or receiver of the Seller. If, however, the FDIC were to
take a contrary position, such as by requiring the Indenture Trustee or
Eligible Lender Trustee with respect to each Trust to establish its rights in
the related Student Loans by submitting to and complying with the
administrative claims procedure established under FIRREA, delays in payments
on the Securities and possible reductions in the amounts of those payments
could occur. In addition, under FIRREA, the FDIC may disaffirm or repudiate
any contract to which an insolvent bank is a party, the performance of which
is determined to be burdensome, and the disaffirmance of which is determined
to promote the orderly administration of such bank's affairs. If the FDIC were
to contend successfully that the Securities of any series evidence a secured
borrowing and that it has the power to repudiate such Securities, the effect
of such repudiation should be to accelerate the maturities of such Securities.
In the event of such acceleration, the amount paid on such Securities would
depend, among other things, on the amount which could be realized from the
sale or other disposition of the related Student Loans at such time. Although
each Master Servicing Agreement will provide for the replacement of the Seller
as Master Servicer in the event of the appointment of a conservator or
receiver of the Seller, the FDIC as conservator or receiver may enforce most
types of contracts, including a Master Servicing Agreement, pursuant to their
terms, notwithstanding any such provision. The FDIC, as conservator or
receiver, may also transfer to a new obligor an insolvent bank's assets and
liabilities (including, in the event that the Securities of any series were
deemed to evidence a secured borrowing, the related Student Loans and the
liability evidenced by such Securities) without the approval of the bank's
creditors (including, in the event such Securities were deemed to evidence a
secured borrowing, holders of such Securities).
If so specified in the related Prospectus Supplement, if an Insolvency Event
with respect to the Company occurs, the Indenture Trustee will, except under
certain limited circumstances, promptly sell, dispose of or otherwise
liquidate the related Student Loans in a commercially reasonable manner on
commercially reasonable terms. The proceeds from any such sale, disposition or
liquidation of Student Loans will be treated as collections on the Student
Loans and deposited in the Collection Account of the related Trust. If the
proceeds from the liquidation of the Student Loans and any amounts on deposit
in the Reserve Account (if any) with respect to any Trust and any amounts
available from any credit enhancement, if any, are not sufficient to pay the
Notes and Certificates of the related series in full, the amount of principal
returned to Noteholders or Certificateholders will be reduced and Noteholders
and Certificateholders will incur a loss.
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in
consumer finance. Also, some state laws impose finance charge ceilings and
other restrictions on certain consumer transactions and require contract
disclosures in addition to those required under federal law. These
requirements impose specific statutory liability that could affect an
assignee's ability to enforce consumer finance contracts such as the Student
Loans. In addition, the remedies available to the related Indenture Trustee or
the Noteholders of the related series upon an Event of Default under the
Indenture may not be readily available or may be limited by applicable state
and federal laws.
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Book-Entry Registration. Each class of the Notes and the Certificates of a
given series will be initially represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), or any other nominee for DTC
set forth in the related Prospectus Supplement (Cede, or such other nominee,
"DTC's Nominee"), and will not be registered in the names of the holders of
the Securities of such series or their nominees. Because of this, unless and
until Definitive Securities for such series are issued, holders of such
Securities will not be recognized by the applicable Indenture Trustee or
Eligible Lender Trustee as "Noteholders", "Certificateholders" or
"Securityholders", as the case may be (as such terms are used herein or in the
related Indenture and Trust Agreement, as the case may be). Hence, unless and
until Definitive Securities (as defined below) are issued, holders of such
Securities will only be able to exercise the rights of Securityholders
indirectly through DTC and its participating organizations. See "Certain
Information Regarding the Securities--Book-Entry Registration" and "--
Definitive Securities".
FORMATION OF THE TRUSTS
THE TRUSTS
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the respective Trust Agreement for the transactions
described herein and in the related Prospectus Supplement. The property of
each Trust will consist of (a) a pool of Student Loans, legal title to which
is held by the related Eligible Lender Trustee on behalf of each Trust, (b)
all funds collected or to be collected in respect thereof (including any
Guarantee Payments with respect thereto) on or after the applicable Cutoff
Date and (c) all moneys and investments on deposit in the Collection Account,
any Reserve Account and any other trust accounts or any other form of credit
or cash flow enhancement that may be obtained for the benefit of holders of
one or more classes of such Securities. To the extent provided in the
applicable Prospectus Supplement, the Notes will be collateralized by the
property of the related Trust. To facilitate servicing and to minimize
administrative burden and expense, the Master Servicer will retain possession
of the promissory notes representing the Student Loans and the other documents
related thereto as custodian for each Trust and the related Eligible Lender
Trustee.
The principal offices of each Trust and the related Eligible Lender Trustee
will be specified in the applicable Prospectus Supplement.
ELIGIBLE LENDER TRUSTEE
The Eligible Lender Trustee for each Trust will be such entity as is
specified in the related Prospectus Supplement. The Eligible Lender Trustee on
behalf of the related Trust will acquire legal title to all the related
Student Loans acquired pursuant to the related Loan Sale Agreement and will
enter into a Guarantee Agreement with each of the Guarantors with respect to
such Student Loans. Each Eligible Lender Trustee will qualify as an eligible
lender and owner of all Federal Student Loans and Private Student Loans for
all purposes under the Act and the Guarantee Agreements. Failure of the
Federal Student Loans to be owned by an eligible lender would result in the
loss of any Federal Guarantee Payments from any Federal Guarantor and any
Federal Assistance with respect to such Federal Student Loans. See "The
Federal Family Education Loan Program--Eligible Lenders, Students and
Institutions" and "--Federal Insurance and Reinsurance of Federal Guarantors".
An Eligible Lender Trustee's liability in connection with the issuance and
sale of the Notes and the Certificates is limited solely to the express
obligations of the Eligible Lender Trustee set forth in the related Trust
Agreement and the related Loan Sale Agreement. An Eligible Lender Trustee may
resign at any time, in which event the Administrator, or its successor, will
be obligated to appoint a successor trustee. The Administrator of a Trust may
also remove the Eligible Lender Trustee if the Eligible Lender Trustee ceases
to be eligible to continue as Eligible Lender Trustee under the related Trust
Agreement or if the Eligible Lender Trustee becomes insolvent. In such
circumstances, the Administrator will be obligated to appoint a qualified
successor trustee. Any resignation or removal of an Eligible Lender Trustee
and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
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USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of Securities of a given series will be applied by the
applicable Trust to purchase the related Student Loans on the Closing Date
from the Seller and to make the initial deposit into the Reserve Account, the
Pre-Funding Account and the Collateral Reinvestment Account, if any. Unless
otherwise specified in the related Prospectus Supplement, the Seller will use
such net proceeds paid to it with respect to any such Trust for general
corporate purposes.
THE SELLER, THE MASTER SERVICER AND THE SUBSERVICERS
THE SELLER AND THE MASTER SERVICER
Signet will act as Seller and Master Servicer with respect to the Student
Loans of each Trust. Signet is a Virginia banking corporation providing a wide
variety of banking and financial services to corporate, institutional and
individual customers through branch offices and automated teller machines
located throughout Virginia, Maryland and the District of Columbia. Signet is
a wholly-owned subsidiary of Signet Banking Corporation, a Virginia
corporation and a bank holding company. Signet (and its predecessors) have
been originating student loans for over 25 years.
The Master Servicer will be responsible for servicing the Student Loans
acquired by the Eligible Lender Trustee on behalf of the related Trust in
accordance with the terms set forth in the Master Servicing Agreement,
pursuant to which it is required to maintain its eligibility as a third-party
servicer under the Act. Certain data processing and administrative functions
are performed on behalf of Signet by Electronic Data Systems. The Master
Servicer may perform its servicing obligations under the Master Servicing
Agreement through one or more subservicing agreements with other student loan
servicers (each, a "Subservicer" and a "Subservicing Agreement"). Such
Subservicing Agreements may be terminated by the Master Servicer with notice,
and the Subservicing Agreements may not have a term which extends to the
maturity date of a series of Securities. In the event such Subservicing
Agreements are terminated or are not renewed or extended, the Trust may
experience delays in collections on the Student Loans until the servicing
obligations of such Subservicer are transferred and assumed by another
Subservicer. See "--The Subservicers" below.
THE SUBSERVICERS
The Master Servicer may from time to time enter into agreements with
Subservicers to the extent specified in the related Prospectus Supplement. As
the scheduled termination date of any Subservicing Agreement may be prior to
the maturity date of a series of Securities, successor subservicers not
identified herein or in the relevant Prospectus Supplement may be engaged to
subservice a portion of the related Student Loans; provided, however, that no
successor subservicer shall be engaged unless the Master Servicer shall have
received prior written notice from each of the Rating Agencies that the
engagement of such successor subservicer shall not cause such Rating Agency to
lower its then-current rating on any of the Securities. Any successor
subservicer shall be deemed a Subservicer under each of the Loan Sale and
Master Servicing Agreements. Notwithstanding the provisions of any
Subservicing Agreement, each Master Servicing Agreement will provide that the
Master Servicer will remain liable for its servicing duties and obligations
under the Master Servicing Agreement as if the Master Servicer were servicing
the Student Loans.
ASSUMPTION OF SIGNET'S OBLIGATIONS
Signet and its parent, Signet Banking Corporation, may from time to time
consider a transfer of its student lending business to another party, which
may or may not be affiliated with Signet (an "Assuming Entity"). The effect of
such a transfer would be, among other things, to transfer Signet's student
lending business and the loans arising in connection therewith, which would
include all, but not less than all, of the Student Loans (the "Assigned
Assets"), together with all servicing and administrative functions and other
obligations under the
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Loan Sale Agreement, the Master Servicing Agreement, the Administration
Agreement and the related transactions contemplated thereby (collectively, the
"Assumed Agreements" and the "Assumed Obligations"), to the Assuming Entity.
Pursuant to each of the Assumed Agreements, Signet is permitted to assign,
convey and transfer the Assigned Assets and the Assumed Obligations to the
Assuming Entity, without the consent or approval of the Noteholders or the
Certificateholders, if the following conditions, among others, are satisfied:
(i) the Assuming Entity, Signet, the Eligible Lender Trustee, and the
Indenture Trustee shall have entered into an Assumption Agreement providing
for the Assuming Entity to assume the Assumed Obligations, (ii) all filings
required to continue the perfection of the interest of the Eligible Lender
Trustee or the Indenture Trustee in the Student Loans shall have been duly
made and copies thereof shall have been delivered by Signet to the Eligible
Lender Trustee and the Indenture Trustee, (iii) if the Assuming Entity is a
savings and loan association, a national banking association, a bank or other
entity that is not subject to Title 11 of the United States Code (a "Non-Code
Entity"), Signet shall have delivered notice of such transfer and assumption
to each Rating Agency (in which case there is no requirement that such
transfer and assumption will not result in a downgrade of the Notes and the
Certificates) or, if such Assuming Entity is not a Non-Code Entity, the Seller
shall have received written notice from each Rating Agency that such transfer
and assumption will not have the effect of reducing the then-current rating of
the Notes and the Certificates, (iv) the Trustee shall have received an
opinion of counsel with respect to clause (ii) above as to certain other
matters specified in the Assumed Agreements and (v) the Eligible Lender
Trustee and the Indenture Trustee shall have received opinions of counsel
acceptable to such Trustees that for Federal, State and local income and
franchise tax purposes and for income and franchise tax purposes of the
jurisdiction in which the Assuming Entity engages in its principal servicing
activities, if different from Maryland, (x) following the transaction the
Trust will not be deemed to be an association (or publicly traded partnership)
taxable as a corporation and (y) such transaction will not affect the tax
characterization as debt of any Notes or Certificates that were characterized
as debt at the time of their issuance and will not cause a taxable event to
the holders of the Notes or Certificates (an opinion of counsel with respect
to any matter to the effect referred to in clauses (x) and (y) with respect to
any action is referred to herein as a "Tax Opinion"). The Assumed Agreements
provide that Signet may enter into amendments to the Assumed Agreements to
permit the transfer and assumption described above without the consent of the
holders of any Notes or Certificates. After any permitted transfer and
assumption, the Assuming Entity will be considered to be "Signet", the
"Seller", the "Master Servicer" and the "Administrator", as applicable, for
all purposes hereof, and Signet Bank will have no further liability or
obligation under the Assumed Agreements.
THE STUDENT LOAN POOLS
GENERAL
The Student Loans to be sold by the Seller to the Eligible Lender Trustee on
behalf of a Trust pursuant to the related Loan Sale Agreement will be selected
from the portfolio of Student Loans originated under the Federal Family
Education Loan Program or a private guarantee program by several criteria,
including that, each Student Loan (i) is self-insured or guaranteed as to
principal and interest by a Guarantor (and, in the case of Federal Student
Loans, that Guarantor is a Federal Guarantor and is in turn reinsured by the
Department in accordance with the terms of the Federal Family Education Loan
Program), (ii) was originated in the United States of America, its territories
or its possessions under and in accordance with the Federal Family Education
Loan Program or a specified private guarantee program, (iii) contains terms in
accordance with those required by the Federal Family Education Loan Program or
a specified private guarantee program, the applicable Guarantee Agreements and
other applicable requirements, (iv) provides for regular payments that fully
amortize the amount financed over its original term to maturity (exclusive of
any deferral or forbearance periods), (v) is not more than 90 days delinquent
and (vi) satisfies the other criteria, if any, set forth in the related
Prospectus Supplement. No selection procedures believed by the Seller to be
adverse to the Securityholders of any series will be used in selecting the
related Student Loans. In addition, no Trust will be established for which, on
the Cutoff Date for such Trust, more than 15% of the related Student Loans by
principal balance are between 31 and 90 days delinquent.
The Student Loans that comprise assets of each Trust will be held by the
related Eligible Lender Trustee, as trustee on behalf of such Trust. The
Eligible Lender Trustee will also enter into, on behalf of such Trust,
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Guarantee Agreements with the Guarantors specified in the applicable
Prospectus Supplement pursuant to which each of such Student Loans will be
guaranteed by one of such Guarantors. See "Formation of the Trusts--Eligible
Lender Trustee".
Information with respect to each pool of Student Loans for a given Trust
will be set forth in the related Prospectus Supplement, including, but not
limited to, to the extent appropriate, the composition, the distribution by
loan type, loan payment status, and states of borrowers' residence and the
portion of such Student Loans guaranteed by the specified Guarantors.
In the case of each series for which the related Trust may acquire or
originate Student Loans after the related Cutoff Date, information with
respect to the Student Loans eligible to be acquired or originated by the
related Trust will be set forth in the related Prospectus Supplement as will
information regarding the duration and conditions of the related Funding
Period or Revolving Period, the circumstances under which Additional Fundings
will be made during such Funding Period or Revolving Period, and, if
Additional Fundings may continue to be made after the Funding Period or
Revolving Period, the circumstances under which such Additional Fundings will
be made.
ORIGINATION AND MARKETING PROCESS
The Act and the private guarantee programs specify rules regarding loan
origination practices, which lenders must comply with in order for the Student
Loans to be guaranteed and to be eligible to receive Federal Assistance, in
the case of Federal Student Loans, and the benefits of the private guarantee
program, in the case of Private Student Loans. Lenders of Federal Student
Loans are prohibited from offering points, premiums, payments or other
inducements, directly or indirectly, to any educational institution, guarantor
or individual in order to secure Federal Student Loan applications, and no
lender may conduct unsolicited mailings of Federal Student Loan applications
to students who have not previously received student loans from that lender.
Generally the student and school complete the combined application with
promissory note and mail it either to a lender or directly to the applicable
Guarantor. Both the lender and such Guarantor must approve such application,
including confirming that such application is complete and that it (and the
prospective borrower and institution) complies with all applicable
requirements of the Act and the requirements of such Guarantor. The Act
requires that each Guarantor have procedures designed to assure that it
guarantees Federal Student Loans only to students attending institutions which
meet the requirements of the Act. Certain lenders establish maximum default
rates for institutions whose students they will serve. Each lender will only
make loans that are approved by the applicable Guarantor (consistent with the
approval requirements of the Act and the Guarantor). For each such application
that is approved, the applicable Guarantor will issue a guarantee certificate
to the lender, which will then cause the loan to be disbursed (typically in
multiple installments) and a disclosure statement confirming the terms of the
Student Loan to be sent to the student (or parent) borrower. These procedures
differ slightly for Consolidation Loans.
SERVICING AND COLLECTIONS PROCESS
The applicable Guarantee Agreements, and the Act in the case of Federal
Student Loans, require the holder of Student Loans to cause specified
procedures, including due diligence procedures and the taking of specific
steps at specific intervals, to be performed with respect to the servicing of
the Student Loans. These procedures are designed to ensure that such Student
Loans are repaid on a timely basis by or on behalf of borrowers. The Master
Servicer agrees to perform such servicing and collection procedures with
respect to the Student Loans on behalf of each Trust pursuant to the related
Master Servicing Agreement. Such procedures generally include periodic
attempts to contact any delinquent borrower by telephone and by mail,
commencing with one written notice within the first ten days of delinquency
and including multiple written notices and telephone calls to the borrower
thereafter at specified times during any such delinquency. All telephone calls
and letters are registered, and a synopsis of each call or the mailing of each
letter is noted in the Master Servicer's loan file for the
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borrower. The Master Servicer is also required to perform skip tracing
procedures on delinquent borrowers whose current location is unknown,
including contacting such borrowers' schools and references. Failure to comply
with the established procedures could adversely affect the ability of a given
Eligible Lender Trustee, as holder of legal title to the Student Loans on
behalf of the related Trust, to realize the benefits of any Guarantee
Agreement or, in the case of Federal Student Loans, to receive the benefits of
Federal Assistance from the Department with respect thereto. Failure to comply
with certain of the established procedures with respect to a Student Loan may
also result in the denial of coverage under a Guarantee Agreement for certain
accrued interest amounts, in circumstances where such failure has not caused
the loss of the guarantee of the principal of such Student Loan. See "Risk
Factors--Failure to Comply with Student Loan Origination and Servicing
Procedures for Federal Student Loans" and "--Failure to Comply with Student
Loan Origination and Servicing Procedures for Private Student Loans".
At prescribed times prior to submitting a claim for payment under a
Guarantee Agreement for a delinquent Student Loan, the Master Servicer
generally is required to notify the applicable Guarantor of the existence of
such delinquency. These notices advise the Guarantor of seriously delinquent
accounts and allow the Guarantor to make additional attempts to collect on
such loans prior to the filing of claims. Any Student Loan which becomes 180
days delinquent is considered to be in default, after which the Master
Servicer will submit a claim for reimbursement therefor to the applicable
Guarantor. Failure to file a claim within specified time frames of delinquency
may result in denial of the guarantee claim with respect to such Student Loan,
and failure to file such a claim within certain shorter specified time frames
of delinquency may result in a denial of certain interest amounts included in
such claims. The Master Servicer's failure to file a guarantee claim in a
timely fashion would constitute a breach of its covenants and would, if as a
result of such failure the related guarantee payment is no longer available to
the related Trust, create an obligation of the Master Servicer to arrange for
the purchase of the applicable Student Loan from the applicable Eligible
Lender Trustee on behalf of the related Trust. The obligation of the Master
Servicer to arrange for such a purchase will constitute the sole remedy
available to Securityholders or the Eligible Lender Trustee for such a failure
by the Master Servicer. See "Description of the Transfer and Servicing
Agreements--Servicer Covenants".
CLAIMS AND RECOVERY RATES
Certain historical information concerning the Guarantors for the Student
Loans with respect to each series of Securities, including but not limited to
guarantee claims and recovery rates, will be set forth in each Prospectus
Supplement. There can be no assurance that the claim and recovery experience
on any pool of Student Loans with respect to a given Trust will be comparable
to prior experience or to any such information.
FEDERAL FAMILY EDUCATION LOAN PROGRAM
GENERAL
The Act provides for loans to be made to students or parents of dependent
students enrolled in eligible institutions to finance a portion of the costs
of attending school. As described herein, payment of principal and interest
with respect to the Federal Student Loans is guaranteed by the applicable
Federal Guarantor against default, death, bankruptcy or disability of the
applicable borrower and claims of school closure and false certification. The
Federal Guarantors are entitled, subject to certain conditions, to be
reimbursed by the Department for from 100% to 78% of the amount of each
Guarantee Payment made pursuant to a program of federal reinsurance under the
Act. In addition, the related Eligible Lender Trustee, as a holder of the
Federal Student Loans on behalf of a Trust, is entitled to receive from the
Department certain interest subsidy payments and special allowance payments
with respect to certain of such Federal Student Loans as described herein.
FFELP provides for loans to students and parents of dependent students which
are (i) insured by a Guarantor and reinsured by the federal government or (ii)
directly insured by the federal government. Several types of Federal Student
Loans are currently authorized under the Act: (i) loans to students who
demonstrate need
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("Federal Stafford Loans"); (ii) loans to students who do not demonstrate need
or who need additional loans to supplement their Federal Stafford Loans
("Federal Unsubsidized Stafford Loans"); (iii) loans to parents of students
("Federal PLUS Loans") who are dependents and whose need exceeds the available
Federal Unsubsidized Stafford Loans and/or Stafford Loans and (iv) loans to
consolidate the borrower's obligations under various federally authorized
student loan programs into a single loan ("Federal Consolidation Loans").
Prior to July 1, 1994, the Act also authorized loans to graduate and
professional students, independent undergraduate students and, under certain
circumstances, dependent undergraduate students to supplement their Federal
Stafford Loans ("Federal Supplemental Loans to Students" or "Federal SLS
Loans"). The description and summaries of the Act, FFELP, the Guarantee
Agreements and the other statutes, regulations and amendments referred to in
this Prospectus do not purport to be comprehensive and are qualified in their
entirety by reference to each such statute, regulation or document. There can
be no assurance that future amendments or modifications will not materially
change any of the terms or provisions of the programs described in this
Prospectus or of the statutes and regulations implementing these programs. See
"Risk Factors --Change in Law".
LEGISLATIVE AND ADMINISTRATIVE MATTERS
Both the Act and the regulations promulgated thereunder have been the
subject of extensive amendments in recent years and there can be no assurance
that further amendment will not materially change the provisions described
herein or the effect thereof. The 1992 Amendments extended the principal
provisions of FFELP to October l, 1998 (or in the case of borrowers who have
received loans prior to that date, September 30, 2002, except that authority
to make Federal Consolidation Loans expires on September 30, 1998).
The Omnibus Budget Reconciliation Act of 1993 (the "1993 Act") made a number
of changes to the Federal Student Loan programs, including imposing certain
fees on lenders or holders of Federal Student Loans and affecting the
Department's financial assistance to Federal Guarantors, including the
reduction of the percentage of claim payments the Department will reimburse to
Federal Guarantors and reducing more substantially the insurance premiums and
default collections that Federal Guarantors are entitled to receive and/or
retain. In addition, such legislation contemplates replacement of a minimum of
approximately 60% of the Federal Student Loan programs with direct lending by
the Department by 1998. The expansion of the new program may involve further
reductions in the volume of loans made under the existing programs, and/or the
prepayment of existing FFELP loans via the Federal Direct Consolidation Loan
Program. The volume of existing loans that may be prepaid in this fashion is
not determinable at this time. This reduction could result in increased costs
for the Master Servicer or any Subservicer due to reduced economics of scale.
Such cost increases could affect the ability of the Master Servicer to satisfy
its obligation to service the Student Loans or the obligations of the Seller
to repurchase and the Master Servicer to purchase the Student Loans in the
event of certain breaches of their respective representations and warranties
or covenants. See "Description of the Transfer and Servicing Agreements--Sale
of Student Loans; Representations and Warranties" and "--Servicer Covenants".
Such volume reductions could also reduce revenues received by Federal
Guarantors that are available to pay claims on defaulted Student Loans.
Finally, the level of competition in existence in the secondary market for
loans made under the existing programs could be reduced, resulting in fewer
potential buyers of Federal Student Loans and lower prices available in the
secondary market for those loans. Such a price reduction could have an adverse
effect on the ability of the Indenture Trustee to sell the Student Loans
pursuant to an auction or upon a liquidation or termination of the Trust. See
"Description of the Transfer and Servicing Agreements--Termination" and
"Description of the Notes--The Indenture--Events of Default; Rights Upon
Events of Default".
On April 29, 1994, the Department published regulations amending the Student
Assistance General Provisions and FFELP regulations effective July l, 1994.
These regulations, among other things, establish requirements governing
contracts between holders of Federal Student Loans and third-party servicers,
established standards of administrative and financial responsibility for
third-party servicers that administer any aspect of a guarantor's or lender's
participation in the FFELP, and established sanctions for third-party
servicers that fail to conform their administrative practices to such
regulations.
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Under these regulations, a third-party servicer (such as the Master Servicer
and, with respect to certain other holders, any Subservicer) is jointly and
severally liable with its client lenders for liabilities to the Department
arising from the servicer's violation of applicable requirements. In addition,
if a servicer fails to meet standards of financial responsibility or
administrative capability included in the new regulations, or violates other
FFELP requirements, the new regulations authorize the Department to fine the
servicer and/or limit, suspend or terminate the servicer's eligibility to
contract to service Federal Student Loans. The effect of such a limitation,
suspension, or termination on a servicer's eligibility to service loans
already on its system, or to accept new loans for servicing under existing
contracts, is unclear. No assurance exists that the Master Servicer or a
Subservicer will not be held liable by the Department for liabilities arising
out of its FFELP activities for a Trust or other client lenders, or that its
eligibility will not be limited, suspended, or terminated in the future. If
the Master Servicer or a Subservicer were to be held liable or its eligibility
limited, suspended, or terminated, the Master Servicer's ability to properly
service Student Loans and to satisfy its obligation to arrange the purchase of
loans as to which it breaches its covenants under the applicable Master
Servicing Agreement could be adversely affected. In such event, a Servicer
Default under the related Master Servicing Agreement could occur resulting in
the removal of the Master Servicer and the appointment of a successor Master
Servicer by the Indenture Trustee or the holders of Notes of the related
series evidencing not less than 75% in principal amount of such then
outstanding Notes. See "Description of the Transfer and Servicing Agreements--
Rights Upon Servicer Default".
ELIGIBLE LENDERS, STUDENTS AND EDUCATIONAL INSTITUTIONS
Lenders eligible to make loans under FFELP generally include banks, savings
and loan associations, credit unions, pension funds, insurance companies, and
under certain conditions, schools and guarantors. Federal Student Loans may
only be made to a "qualified student", generally defined as a United States
citizen or national or otherwise eligible individual under federal regulations
who (a) has been accepted for enrollment or is enrolled and is maintaining
satisfactory progress at an eligible school, (b) is carrying at least one-half
of the normal full-time academic workload for the course of study the student
is pursuing, as determined by such institution, (c) has agreed to notify
promptly the holder of the loan of any address change and (d) meets the
application "need" requirements for the particular loan program. Each loan is
to be evidenced by an unsecured promissory note.
Eligible schools include institutions of higher education and proprietary
institutions. Institutions of higher education must meet certain standards,
which generally provide that the institution (i) only admits persons that have
a high school diploma or its equivalent; (ii) is legally authorized to operate
within the state; (iii) provides not less than a two-year program with credit
acceptable toward a bachelor's degree; (iv) is a public or non-profit
institution and (v) is accredited by a nationally recognized accrediting
agency or is determined by the Department to meet the standards of an
accredited institution. Eligible proprietary institutions include business,
trade and vocational schools meeting standards which provide that the
institution (i) only admits persons that have a high school diploma or its
equivalent, or persons that are beyond the age of compulsory school attendance
and have the ability to benefit from the training offered (as defined in the
Act); (ii) is authorized by the state to provide a program of vocational
education designed to fit individuals for useful employment in recognized
occupations; (iii) provides at least a six-month training program to prepare
students for gainful employment in a recognized occupation; (iv) has been in
existence for at least two years and (v) is accredited by a nationally
recognized accrediting agency or association.
With specified exceptions, institutions are excluded from consideration as
educational institutions if the institution (i) offers more than 50 percent of
its courses by correspondence, (ii) enrolls 50 percent or more of its students
in correspondence courses, (iii) has a student enrollment in which more than
25 percent of the students are incarcerated, or (iv) has a student enrollment
in which more than 50 percent of the students are admitted without a high
school diploma or its equivalent on the basis of their ability to benefit from
the education provided (as defined by statute and regulation). Further,
schools are specifically excluded from participation if (i) the educational
institution has filed for bankruptcy, (ii) the owner, or its chief executive
officer, has been convicted or pleaded nolo contendere or guilty to a crime
involving the acquisition, use or expenditure of federal student aid funds, or
has been judicially determined to have committed fraud involving funds under
the student aid
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program or (iii) the educational institution has a cohort default rate in
excess of the rate prescribed by the Act. In order to participate in the
program, the eligibility of a school must be approved by the Department under
standards established by regulation.
FINANCIAL NEED ANALYSIS
Federal Student Loans may generally be made in amounts, subject to certain
limits and conditions, to cover the student's estimated costs of attendance,
including tuition and fees, books, supplies, room and board, transportation
and miscellaneous personal expenses (as determined by the institution). With
the exception of certain borrowers under the Federal Unsubsidized Stafford
Loan, Federal PLUS Loan, and Federal Consolidation Loan programs, each
borrower must undergo a financial need analysis, which requires the borrower
to submit a financial need analysis form to a multiple data entry processor
which forwards the information to the federal central processor. The central
processor evaluates the parents' and student's financial condition under
federal guidelines and calculates the amount that the student and/or the
family must contribute towards the student's cost of education (the "family
contribution"). After receiving information on the family contribution, the
institution then subtracts the family contribution from the cost for the
student to attend such institution to determine the student's eligibility for
grants, loans, and work assistance. The difference between the amount of
grants and Federal Stafford Loans for which the borrower is eligible and the
student's estimated cost of attendance (the "Unmet Need") may be borrowed
through Federal Unsubsidized Stafford Loans and, after exhausting Federal
Unsubsidized Stafford Loan limits, Federal SLS and Federal PLUS Loans. Parents
may finance the family contribution amount through their own resources or
through Federal PLUS Loans.
SPECIAL ALLOWANCE PAYMENTS
The Act provides for quarterly special allowance payments ("Special
Allowance Payments") to be made by the Department to holders of Federal
Student Loans to the extent necessary to ensure that such holder receives at
least a specified market interest rate of return on such loans. The rates for
Special Allowance Payments are based on formulas that differ according to the
type of loan, the date the loan was originally made or insured and the type of
funds used to finance such loan (tax-exempt or taxable). A Special Allowance
Payment is made for each of the 3-month periods ending March 31, June 30,
September 30, and December 31. The Special Allowance Payment equals the
average unpaid principal balance (including interest permitted to be
capitalized) of all eligible loans held by such holder during such period
multiplied by the special allowance percentage. The special allowance
percentage is computed by (i) determining the average of the bond equivalent
rates of 91-day Treasury bills auctioned for such 3-month period, (ii)
subtracting the applicable borrower interest rate on such loan from such
average, (iii) adding the applicable Special Allowance Margin (as set forth
below) to the resultant percentage, and (iv) dividing the resultant percentage
by 4, provided, that, if the amount determined by the application of clauses
(i), (ii) and (iii) is in the negative, the Special Allowance Margin is zero.
<TABLE>
<CAPTION>
DATE OF DISBURSEMENT SPECIAL ALLOWANCE MARGIN
-------------------- ------------------------
<S> <C>
Prior to 10/17/86........... 3.50%
10/17/86-09/30/92........... 3.25%
10/01/92-06/30/95........... 3.10%
07/01/95-06/30/98........... 2.50% (Federal Stafford Loans and Federal
Unsubsidized Stafford Loans that are in school,
grace or deferment); 3.10% (Federal Stafford Loans
and Federal Unsubsidized Stafford Loans that are in
repayment and all other loans)
</TABLE>
Special Allowance Payments are available on variable rate Federal PLUS and
Federal SLS Loans only if the variable rate, which is reset annually based on
the 52-week Treasury Bill, exceeds the applicable maximum rate. Such maximum
is generally between 9% and 12%.
29
<PAGE>
FEDERAL STAFFORD LOANS
The Act provides for (i) federal insurance or reinsurance of Federal
Stafford Loans made by eligible lenders to qualified students, (ii) federal
interest subsidy payments on certain eligible Federal Stafford Loans to be
paid by the Department to holders of the loans in lieu of the borrower making
interest payments ("Interest Subsidy Payments") and (iii) Special Allowance
Payments representing an additional subsidy paid by the Department to the
holders of eligible Federal Stafford Loans (such federal reinsurance
obligations, together with those obligations referred to in clauses (ii) and
(iii) above, being collectively referred to herein as "Federal Assistance").
Interest. The borrower's interest rate on a Federal Stafford Loan may be
fixed or variable. Federal Stafford Loan interest rates are summarized in the
chart below.
<TABLE>
<CAPTION>
TRIGGER DATE(1) BORROWER RATE(2) MAXIMUM RATE INTEREST RATE MARGIN
--------------- ------------------------ ----------------- --------------------
<C> <S> <C> <C>
Prior to 01/01/81.. 7% 7% N/A
01/01/81-09/12/83.. 9% 9% N/A
09/13/83-06/30/88.. 8% 8% N/A
07/01/88-09/30/92.. 8% for 48 months; 8% for 48 months, 3.25%
thereafter, 91-Day then 10%
Treasury + Interest Rate
Margin
10/01/92-06/30/94.. 91-Day Treasury + 9% 3.10%
Interest Rate Margin
07/01/94-06/30/95.. 91-Day Treasury + 8.25% 3.10%
Interest Rate Margin
07/01/95-06/30/98.. 91-Day Treasury + 8.25% 2.50% (in school,
Interest Rate Margin grace or deferment);
3.10% (in repayment)
</TABLE>
- --------
(1) The Trigger Date for Federal Stafford Loans made before October 1, 1992
is the first day of enrollment period for which a borrower's first
Federal Stafford Loans is made and for Federal Stafford Loans made on
October 1, 1992 and after the Trigger Date is the date of the
disbursement of a borrower's first Federal Stafford Loan.
(2) The rate for variable rate Federal Stafford Loans applicable for any 12-
month period beginning on July 1 and ending on June 30, is determined on
the preceding June 1 and is equal to the lesser of (a) the applicable
Maximum Rate or (b) the sum of (i) the bond equivalent rate of 91-day
Treasury bills auctioned at the final auction held prior to such June 1
and (ii) the applicable Interest Rate Margin.
The 1992 Amendments provide that, for fixed rate loans made on or after July
23, 1992 and for certain loans made to new borrowers on or after July 1, 1988,
the lender must have converted by January 1, 1995 the interest rate on such
loans to an annual interest rate adjusted each July 1 equal to (1) for certain
loans made between July 1, 1988 and July 23, 1992, the 91-day Treasury bill
rate at the final auction prior to the preceding June 1 plus 3.25% and (2) for
loans made on or after July 23, 1992, the 91-day Treasury bill rate at the
final auction prior to the preceding June 1 plus 3.10%, in each case capped at
the applicable interest rate for such loan existing prior to the conversion.
The variable interest rate does not apply to loans made prior to July 23, 1992
during the first 48 months of repayment.
Interest Subsidy Payments. The Department is responsible for paying interest
on Federal Stafford Loans while the borrower is a qualified student, during a
grace period or during certain deferral periods. The Department makes
quarterly Interest Subsidy Payments to the owner of Federal Stafford Loans in
the amount of interest accruing on the unpaid balance thereof prior to the
commencement of repayment or during any Deferral Periods. The Act provides
that the owner of an eligible Federal Stafford Loan shall be deemed to have a
contractual right against the United States of America to receive Interest
Subsidy Payments (and Special Allowance Payments) in accordance with its
provisions. Receipt of Interest Subsidy Payments and Special Allowance
Payments is conditioned on compliance with the requirements of the Act,
including satisfaction of certain need-based criteria (and the delivery of
sufficient information by the borrower and the lender to the Department to
confirm the foregoing) and continued eligibility of such loan for federal
reinsurance. Such
30
<PAGE>
eligibility may be lost, however, if the loans are not held by an eligible
lender, in accordance with the requirement of the Act and the applicable
Federal Guarantee Agreements. See "--Eligible Lenders, Students and
Institutions" above; "Risk Factors--Failure to Comply with Student Loan
Origination and Servicing Procedures for Federal Student Loans"; "Formation of
the Trust--Eligible Lender Trustee" and "Description of the Transfer and
Servicing Agreements--Servicing Procedures". The Seller expects that
substantially all of the Federal Stafford Loans that are conveyed to a Trust
will be eligible to receive Interest Subsidy Payments and Special Allowance
Payments.
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 days to 60 days after submission to the Department of the
applicable claim forms for any given calendar quarter, although there can be
no assurance that such payments will in fact be received from the Department
within that period. See "Risk Factors--Variability of Actual Cash Flows" and
"--Inability of Related Indenture Trustee to Liquidate Student Loans". The
Master Servicer has agreed to prepare and file with the Department all such
claims forms and any other required documents or filings on behalf of each
Eligible Lender Trustee as owner of the related Federal Student Loans on
behalf of each Trust. The Master Servicer has also agreed to assist each
Eligible Lender Trustee in monitoring, pursuing and obtaining such Interest
Subsidy Payments and Special Allowance Payments, if any, with respect to such
Federal Student Loans. Each Eligible Lender Trustee will be required to remit
Interest Subsidy Payments and Special Allowance Payments it receives with
respect to such Federal Student Loans within two business days of receipt
thereof to the related Collection Account.
Loan Limits. The Act requires that loans be disbursed by eligible lenders in
at least two separate and equal disbursements. The Act limited the amount a
student can borrow in any academic year and the amount he or she can have
outstanding in the aggregate. The following chart sets forth the current and
historic loan limits.
<TABLE>
<CAPTION>
ALL STUDENTS (1) INDEPENDENT STUDENTS (1)
---------------- ---------------------------
BASE AMOUNT ADDITIONAL
SUBSIDIZED AND UNSUBSIDIZED
SUBSIDIZED UNSUBSIDIZED ON ONLY ON OR
SUBSIDIZED ON OR AFTER OR AFTER AFTER TOTAL
BORROWER'S ACADEMIC LEVEL PRE-1/1/87 1/1/87 10/1//93(2) 7/1/94(3) AMOUNT
- ------------------------- ---------- ----------- ---------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Undergraduate (per year)
1st year............... $ 2,500 $ 2,625 $ 2,625 $ 4,000 $ 6,625
2nd year............... $ 2,500 $ 2,625 $ 3,500 $ 4,000 $ 7,500
3rd year and above..... $ 2,500 $ 4,000 $ 5,500 $ 5,000 $ 10,500
Graduate (per year)...... $ 5,000 $ 7,500 $ 8,500 $ 10,000 $ 18,500
Aggregate Limited
Undergraduate.......... $12,500 $17,250 $23,000 $ 23,000 $ 46,000
Graduate (including
undergraduate)........ $25,000 $54,750 $65,500 $ 73,000 $ 138,500
</TABLE>
- --------
(1) The loan limits are inclusive of both Federal Stafford Loans and Federal
Direct Student Loans.
(2) These amounts represent the combined maximum loan amount per year for
Federal Stafford and Federal Unsubsidized Stafford Loans. Accordingly, the
maximum amount that a student may borrow under an Federal Unsubsidized
Loan is the difference between the combined maximum loan amount and the
amount the student received in the form of a Federal Stafford Loan.
(3) Independent undergraduate students, graduate students or professional
students may borrow these additional amounts. In addition, dependent
undergraduate students may also receive these additional loan amounts if
the parents of such students are unable to provide the family contribution
amount and it is unlikely that the student's parents will qualify for a
Federal PLUS Loan.
The annual loan limits are reduced in some instances where the student has
less than a full academic year remaining in his or her program. The Department
has discretion to raise these limits to accommodate highly specialized or
exceptionally expensive courses of study.
31
<PAGE>
Repayment. Repayment of principal on a Federal Stafford Loan generally does
not commence while a student remains a qualified student, but generally begins
upon expiration of the applicable grace period, as described below. Any
borrower may voluntarily prepay without premium or penalty any loan and in
connection therewith may waive any Grace Period or Deferral Period. In
general, each loan must be scheduled for repayment over a period of not more
than ten years after the commencement of repayment. The Act currently requires
minimum annual payments of $600 or, if greater, the amount of accrued interest
for that year, unless the borrower and the lender agree to lesser payments.
Effective July 1, 1993, the Act and regulations promulgated thereunder require
lenders to offer graduated or income-sensitive repayment schedules to all
borrowers who receive a loan on or after such date.
Grace Periods, Deferral Periods, Forbearance Periods. Repayment of principal
on a Federal Stafford Loan must generally commence following a period of (a)
not less than 9 months or more than 12 months (with respect to loans for which
the applicable interest rate is 7% per annum) and (b) not more than 6 months
(with respect to loans for which the applicable interest rate is 9% per annum
or 8% per annum and for loans to first time borrowers on or after July l,
1988) after the borrower ceases to pursue at least a half-time course of study
(a "Grace Period"). However, during certain other periods (each, a "Deferral
Period") and subject to certain conditions, no principal repayments need be
made, including periods when the student has returned to an eligible
educational institution on a full-time basis or is pursuing studies pursuant
to an approved graduate fellowship program, or when the student is a member of
the Armed Forces or a volunteer under the Peace Corps Act or the Domestic
Volunteer Service Act of 1973, or when the borrower is temporarily totally
disabled, or periods during which the borrower may defer principal payments
because of temporary financial hardship. For new borrowers to whom loans are
first disbursed on or after July l, 1993, payment of principal may be deferred
only while the borrower is at least a half-time student or is in an approved
graduate fellowship program or is enrolled in a rehabilitation program, or
when the borrower is seeking but unable to find full-time employment, subject
to a maximum deferment of three years, or when for any reason the lender
determines that payment of principal will cause the borrower economic
hardship, also subject to a maximum deferment of three years. The 1992
Amendments also permit forbearance of loan collection in certain circumstances
(each such period, a "Forbearance Period").
FEDERAL UNSUBSIDIZED STAFFORD LOANS
The Federal Unsubsidized Stafford Loan program created under the 1992
Amendments is designed for students who do not qualify for the maximum Federal
Stafford Loan due to parental and/or student income and assets in excess of
permitted amounts. The basic requirements for Federal Unsubsidized Stafford
Loans are essentially the same as those for the Federal Stafford Loans,
including with respect to provisions governing the interest rate, the annual
loan limits and the Special Allowance Payments. The terms of the Federal
Unsubsidized Stafford Loans, however, differ in some respects. The federal
government does not make Interest Subsidy Payments on Federal Unsubsidized
Stafford Loans. The borrower must either begin making interest payments within
60 days after the time the loan is disbursed or permit capitalization of the
interest by the lender until repayment begins. Prior to July 1, 1994, Federal
Unsubsidized Stafford Loan borrowers were required to pay, upon disbursement,
a 6.5% insurance fee to the Department, though no guarantee fee may be charged
by the applicable Federal Guarantor. Effective July 1, 1994, the maximum
insurance premium is reduced to l% and the origination fee is 3%. Subject to
the same loan limits established for Federal Stafford Loans, the student may
borrow up to the amount of such student's Unmet Need. Lenders are authorized
to make Federal Unsubsidized Stafford Loans for periods of enrollment
beginning on or after October l, 1992.
FEDERAL PLUS AND FEDERAL SLS LOAN PROGRAMS
The Act authorizes Federal PLUS Loans to be made to parents of eligible
dependent students and Federal SLS Loans to be made to certain categories of
students. After July l, 1993, only parents who do not have an adverse credit
history are eligible for Federal PLUS Loans. The basic provisions applicable
to Federal PLUS and Federal SLS Loans are similar to those of Federal Stafford
Loans with respect to the federal insurance and reinsurance on the loans.
However, Federal PLUS and Federal SLS Loans differ from Federal Stafford
Loans, particularly because Interest Subsidy Payments are not available under
the Federal PLUS and Federal SLS Programs and in some instances Special
Allowance Payments are more restricted.
32
<PAGE>
Loan Limits. Federal PLUS and Federal SLS Loans disbursed prior to July l,
1993 are limited to $4,000 per academic year with a maximum aggregate amount
of $20,000. Federal SLS Loan limits for loans disbursed on or after July l,
1993 depended upon the class year of the student and the length of the
academic year. The annual loan limit for Federal SLS Loans first disbursed on
or after July l, 1993 ranged from $4,000 for first and second year
undergraduate borrowers to $10,000 for graduate borrowers, with a maximum
aggregate amount of $23,000 for undergraduate borrowers and $73,000 for
graduate and professional borrowers. After July l, 1994, for purposes of new
loans being originated, the Federal SLS programs will be merged with the
Federal Unsubsidized Stafford Loan program with the borrowing limits
reflecting the combined eligibility under both programs. The only limit on the
annual and aggregate amounts of Federal PLUS Loans first disbursed on or after
July l, 1993 is the cost of the student's education less other financial aid
received, including scholarship, grants and other student loans.
Interest. The interest rate determination for a PLUS or SLS loan is
dependent on when the loan was originally made and disbursed and the period of
enrollment. The interest rates for PLUS and SLS loans are summarized in the
following chart.
<TABLE>
<CAPTION>
TRIGGER DATE BORROWER RATE(1) MAXIMUM RATE(2) INTEREST RATE MARGIN
------------ --------------------------------------- ---------------- --------------------
<S> <C> <C> <C>
Prior to 10/01/81....... 9% 9% N/A
10/01/81-10/30/82....... 14% 14% N/A
11/01/82-06/30/87....... 12% 12% N/A
07/01/87-09/30/92....... 52-Week Treasury + Interest Rate Margin 12% 3.25%
10/01/92-06/30/94....... 52-Week Treasury + Interest Rate Margin PLUS 10% SLS 11% 3.10%
After 06/30/94.......... 52-Week Treasury + Interest Rate Margin 9% 3.10%
(SLS repealed 07/01/94)
</TABLE>
- --------
(1) The Trigger Date for PLUS and SLS loans made before October 1, 1992 is
the first day of enrollment period for which the loan is made, and for
PLUS and SLS loans made on October 1, 1992 and after the Trigger Date is
the date of the disbursement of the loan, respectively.
(2) For PLUS or SLS loans that carry a variable rate, the rate is set
annually for 12-month periods beginning on July 1 and ending on June 30
on the preceding June 1 and is equal to the lessor of (a) the applicant
maximum rate or (b) the sum of (i) the bond equivalent rate of 52-week
Treasury bills auctioned at the final auction held prior to such June 1,
and (ii) the applicable Interest Rate Margin.
A holder of a PLUS or SLS loan is eligible to receive Special Allowance
Payments during any such 12-month period if (a) the sum of (i) the bond
equivalent rate of 52-week Treasury bills auctioned at the final auction held
prior to such June 1 and (ii) the Interest Rate Margin exceeds (b) the Maximum
Rate.
Repayment, Deferments. The 1992 Amendments provide Federal SLS borrowers
with the option to defer commencement of repayment of principal until the
commencement of repayment of Federal Stafford Loans. Otherwise, repayment of
principal of Federal PLUS and Federal SLS Loans is required to commence no
later than 60 days after the date of disbursement of such loan, subject to
certain deferral and forbearance provisions. The deferral provisions which
apply are more limited than those which apply to Federal Stafford Loans.
Repayment of interest, however, may be deferred and capitalized during certain
periods of educational enrollments and periods of unemployment or hardship as
specified under the Act. Further, whereas Interest Subsidy Payments are not
available for such deferments, interest may be capitalized during such periods
upon agreement of the lender and borrower. Maximum loan repayment periods and
minimum payment amounts are the same as for Federal Stafford Loans.
A borrower may refinance all outstanding Federal PLUS Loans under a single
repayment schedule for principal and interest, with the new repayment period
calculated from the date of repayment of the most recent included loan. The
interest rate of such refinanced loan shall be the weighted average of the
rates of all Federal PLUS Loans being refinanced. A second type of refinancing
enables an eligible lender to reissue a Federal PLUS Loan which was initially
originated at a fixed rate prior to July l, 1987 in order to permit the
borrower to obtain
33
<PAGE>
the variable interest rate available on Federal PLUS Loans on and after July
1, 1987. If a lender is unwilling to refinance the original Federal PLUS Loan,
the borrower may obtain a loan from another lender for the purpose of
discharging the loan and obtaining a variable interest rate.
FEDERAL CONSOLIDATION LOAN PROGRAM
The Act authorizes a program under which certain borrowers may consolidate
one or more of their Federal Student Loans as well as loans made pursuant to
the Perkins and Health Professional Student Loan Programs into a single loan
(a "Federal Consolidation Loan") insured and reinsured on a basis similar to
Federal Stafford Loans. Federal Consolidation Loans may be made in an amount
sufficient to pay outstanding principal, unpaid interest and late charges on
all federally insured or reinsured student loans incurred under FFELP selected
by the borrower, as well as loans made pursuant to various other federal
student loan programs and which may have been made by different lenders. Under
this program, a lender may make a Federal Consolidation Loan to an eligible
borrower at the request of the borrower if the lender holds an outstanding
loan of the borrower or the borrower certifies that he has been unable to
obtain a Federal Consolidation Loan from the holders of the outstanding loans
made to the borrower. Borrowers that are unable to obtain a Federal
Consolidation Loan from an eligible lender or a Federal Consolidation Loan
with an income-sensitive repayment plan acceptable to the borrower may obtain
a Federal Consolidation Loan under the direct loan program. Federal
Consolidation Loans that are made on or after July 1, 1994 will have no
minimum loan amount, although Federal Consolidation Loans for less than $7,500
must be repaid in ten years. Applications for Federal Consolidation Loans
received on or after January l, 1993 but prior to July l, 1994, are available
only to borrowers who have aggregate outstanding student loan balances of at
least $7,500; for applications received before January l, 1993, Federal
Consolidation Loans are available only to borrowers who have aggregate
outstanding student loan balances of at least $5,000. The borrowers must be
either in repayment status or in a grace period preceding repayment and, for
applications received prior to January l, 1993 the borrower must not be
delinquent by more than 90 days on any student loan payment; for applications
received on or after January 1, 1993 delinquent or defaulted borrowers are
eligible to obtain Federal Consolidation Loans if they will reenter repayment
through loan consolidation. For applications received on or after January l,
1993, borrowers may within 180 days of the origination of a Federal
Consolidation Loan add additional loans made prior to consolidation ("Add-on
Consolidation Loans") for consolidation therewith. For applications received
on or after January l, 1993, married couples who agree to be jointly and
severally liable will be treated as one borrower for purposes of loan
consolidation eligibility.
Federal Consolidation Loans bear interest at a rate which equals the
weighted average of interest rates on the unpaid principal balance of
outstanding loans, rounded to the nearest whole percent, with a minimum rate
of 9% for loans originated prior to July 1, 1994. For Federal Consolidation
Loans made on or after July 1, 1994, such weighted average interest rate must
be rounded up to the nearest whole percent. Interest on Federal Consolidation
Loans accrues and, for applications received prior to January l, 1993, is to
be paid without Interest Subsidy by the Department. For Federal Consolidation
Loans received on or after January l, 1993, all interest of the borrower is
paid during all periods of Deferment. However, Federal Consolidation Loan
applications received on or after August 10, 1993 will only be subsidized if
all of the underlying loans being consolidated were subsidized Federal
Stafford Loans. Borrowers may elect to accelerate principal payments without
penalty. Further, no insurance premium may be charged to a borrower and no
insurance premium may be charged to a lender in connection with a Federal
Consolidation Loan. However, lenders must pay a monthly rebate fee at an
annualized rate of 1.05% of the principal plus accrued unpaid interest for
loans disbursed on or after October l, 1993. The rate for Special Allowance
Payments for Federal Consolidation Loans is determined in the same manner as
for Federal Stafford Loans.
Repayment of Federal Consolidation Loans begins 60 days after discharge of
all prior loans which are consolidated. Repayment schedules must include, for
applications received on or after January l, 1993, the establishment of
graduated or income sensitive repayment plans, subject to certain limits
applicable to the sum of the Federal Consolidation Loan and the amount of the
borrower's other eligible student loans outstanding. The lender may, at its
option, include such graduated and income sensitive repayment plans for
applications received prior to that date. Generally, depending on the total of
loans outstanding, repayment may be scheduled
34
<PAGE>
over periods no shorter than ten but not more than twenty-five years in
length. For applications received on or after January l, 1993, the maximum
maturity schedule is 30 years for Federal Consolidation Loans of $60,000 or
more.
All eligible loans of a borrower paid in full through consolidation are
discharged in the consolidation process when the new Federal Consolidation
Loan is issued.
FEDERAL GUARANTORS
The Act authorizes Federal Guarantors to support education financing and
credit needs of students at post-secondary schools. The Act encourages every
state either to establish its own agency or to designate another Federal
Guarantor in cooperation with the Secretary. Under various programs throughout
the United States of America, Federal Guarantors insure and sometimes service
guaranteed student loans. The Federal Guarantors are reinsured by the federal
government for from 80% to 100% of each default claim paid, depending on their
claims experience, for loans disbursed prior to October l, 1993 and from 78%
to 98% of each default claim paid for loans disbursed on or after October l,
1993. Federal Guarantors are reinsured by the federal government for 100% of
death, disability, and bankruptcy claims paid. See "--Federal Insurance and
Reinsurance of Federal Guarantors" below.
Federal Guarantors collect a one-time insurance premium ranging from 0% to
3% of the principal amount of each guaranteed loan, depending on the Federal
Guarantor. Federal Guarantors are prohibited from charging insurance premiums
on loans made under the Federal Unsubsidized Stafford Loan program prior to
July 1, 1994. On such loans made prior to July 1, 1994, the Act requires that
a 6.5% combined loan origination fee and insurance premium be paid by the
borrower on Federal Unsubsidized Stafford Loans. This fee is passed through to
the Department by the originating lender. Effective July 1, 1994, the maximum
insurance premium and origination fee for Federal Stafford Loans and Federal
Unsubsidized Stafford Loans will be 1% and 3%, respectively.
Each Federal Student Loan to be sold to an Eligible Lender Trustee on behalf
of a Trust will be guaranteed as to principal and interest by a Federal
Guarantor pursuant to a Guarantee Agreement between such Federal Guarantor and
the applicable Eligible Lender Trustee. The applicable Prospectus Supplement
for each Trust will identify each related Federal Guarantor for the Federal
Student Loans held by such Trust as of the applicable Closing Date and the
amount of such Federal Student Loans it is guaranteeing for such Trust.
The 1993 Act granted the Department broad powers over Federal Guarantors and
their reserves. These powers include the authority to require a Federal
Guarantor to return all reserve funds to the Department if the Department
determines such action is necessary to ensure an orderly termination of the
Federal Guarantor, to serve the best interests of the student loan programs or
to ensure the proper maintenance of such Federal Guarantor's funds or assets.
The Department is also now authorized to direct a Federal Guarantor to return
a portion of its reserve funds which the Department determines is unnecessary
to pay the program expenses and contingent liabilities of the Federal
Guarantor and/or to cease any activities involving the use of the Federal
Guarantor's reserve funds or assets which the Department determines is a
misapplication or otherwise improper. The Department may also terminate a
Federal Guarantor's reinsurance agreement if the Department determines that
such action is necessary to protect the federal fiscal interest or to ensure
an orderly transition to full implementation of direct federal lending. These
various changes create a significant risk that the resources available to the
Federal Guarantors to meet their guarantee obligations will be significantly
reduced.
FEDERAL INSURANCE AND REINSURANCE OF FEDERAL GUARANTORS
A Federal Student Loan is considered to be in default for purposes of the
Act when the borrower fails to make an installment payment when due, or to
comply with other terms of the loan, and if the failure persists for 180 days,
as specified by the Act. Under certain circumstances a loan deemed ineligible
for Federal Reinsurance may be restored to eligibility. Procedures for such
restoration of eligibility are discussed below.
35
<PAGE>
If the loan in default is covered by federal loan insurance in accordance
with the provisions of the Act, the Department is to pay the applicable
Federal Guarantor, as insurance beneficiary, the amount of the loss sustained
thereby, upon notice and determination of such amount, within 90 days of such
notification, subject to reduction as described below.
If the loan is guaranteed by a Federal Guarantor, the eligible lender is
reimbursed by the Federal Guarantor for 100% (or not less than 98% for loans
disbursed on or after October l, 1993) of the unpaid principal balance of the
loan plus accrued and unpaid interest on any loan defaulted so long as the
eligible lender has properly originated and serviced such loan. Under the Act,
the Department enters into a reinsurance agreement with each Federal
Guarantor, which provides for federal reinsurance for amounts paid to eligible
lenders by the Federal Guarantor with respect to defaulted loans.
Pursuant to such agreements, the Department also agrees to reimburse a
Federal Guarantor for 100% of the amounts expended in connection with a claim
resulting from the death, bankruptcy, total and permanent disability of a
borrower, the death of a student whose parent is the borrower of a Federal
PLUS Loan or claims by borrowers who received loans on or after January l,
1986 and who are unable to complete the programs in which they are enrolled
due to school closure or borrowers whose borrowing eligibility was falsely
certified by the eligible institution; such claims are not included in
calculating a Federal Guarantor's claims rate experience for federal
reinsurance purposes. The Department is also required to repay the unpaid
balance of any loan if the borrower files for relief under Chapter 12 or 13 of
the Bankruptcy Code or files for relief under Chapter 7 or 11 of the
Bankruptcy Code and commences an action for a determination of
dischargeability under Section 523(a)(8)(b) of the Bankruptcy Code, and is
authorized to acquire the loans of borrowers who are at high risk of default
and who request an alternative repayment option from the Department.
The amount of such reinsurance payment to the Federal Guarantor for default
claims is subject to reduction based upon the annual default claims rate of
the Federal Guarantor, calculated to equal the amount of federal reinsurance
as a percentage of the original principal amount of guaranteed loans in
repayment on the last day of the prior federal fiscal year. The formula is
summarized as follows:
<TABLE>
<CAPTION>
REIMBURSEMENT TO FEDERAL GUARANTOR
CLAIMS RATE OF FEDERAL GUARANTOR BY THE DEPARTMENT OF EDUCATION (1)
- -------------------------------- ----------------------------------------------------
<S> <C>
0% to and including 5%; 100%
Greater than 5% to and 100% of claims to and including 5%; 90% of claims
including 9%; greater than 5%
Greater than 9% 100% of claims to and including 5%; 90% of claims
greater than 5% to and including 9%; and 80% of
claims greater than 9%
</TABLE>
- --------
(1) The federal reimbursement is reduced to 98%, 88% and 78% for loans
disbursed on or after October l, 1993.
The claims experience is not accumulated from year to year, but is
determined solely on the basis of claims in any one federal fiscal year
compared with the original principal amount of loans in repayment at the
beginning of that year.
The 1992 Amendments to the Act addressed education loan industry concerns
regarding the Department's commitment to providing support in the event of
Federal Guarantor failures. Pursuant to the 1992 Amendments, Federal
Guarantors are required to maintain specified reserve fund levels. Such levels
are defined as 0.5% of the total attributable amount of all outstanding loans
guaranteed by the Federal Guarantor for the fiscal year of the Federal
Guarantor that begins in 1993, 0.7% for the Federal Guarantor's fiscal year
beginning in 1994, 0.9% for the Federal Guarantor's fiscal year beginning in
1995, and 1.1% for the Federal Guarantor's fiscal year beginning on or after
January l, 1996. If the Federal Guarantor fails to achieve the minimum reserve
level in any two consecutive years, if the Federal Guarantor's federal annual
claims rate equals or exceeds 9% or if the Department determines the Federal
Guarantor's administrative or financial condition jeopardizes its continued
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ability to perform its responsibilities, the Department may require the
Federal Guarantor to submit and implement a management plan to address the
deficiencies. The Department may terminate the Federal Guarantor's agreements
with the Department if the Guarantor fails to submit the required plan, or
fails to improve its administrative or financial condition substantially, or
if the Department determines the Federal Guarantor is in danger of financial
collapse. In such event, the Department is required to assume responsibility
for the functions of such Federal Guarantor and in connection therewith is
authorized to undertake specified actions to assure the continued payment of
claims, including maturity advances to Federal Guarantors to cover immediate
cash needs, transferring of guarantees to another Federal Guarantor, or
transfer of guarantees to the Department itself. No assurance can be made that
the Department will under any given circumstance exercise its right to
terminate a reimbursement agreement with a Federal Guarantor or make a
determination that such Federal Guarantor is unable to meet its guarantee
obligations.
The Act requires that, subject to compliance with the Act, the Secretary
must pay all amounts which may be required to be paid under the Act as a
result of certain events of death, disability, bankruptcy, school closure or
false certification by the educational institution described therein. It
further provides that Federal Guarantors shall be deemed to have a contractual
right against the United States of America to receive reinsurance in
accordance with its provisions. In addition, the 1992 Amendments provide that
if the Department determines that a Federal Guarantor is unable to meet its
insurance obligations, holders of loans may submit insurance claims directly
to the Department until such time as the obligations are transferred to a new
Federal Guarantor capable of meeting such obligations or until a successor
Federal Guarantor assumes such obligations. No assurance can be made that the
Department would under any given circumstances assume such obligation to
assure satisfaction of a guarantee obligation by exercising its right to
terminate a reimbursement agreement with a Federal Guarantor or by making a
determination that such Federal Guarantor is unable to meet its guarantee
obligations.
PRIVATE STUDENT AND OTHER LOAN PROGRAMS
A description of each private guarantee or other student loan program
relating to the Private Student Loans or other student loans in a Trust will
be set forth in the related Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes and the Certificates of any series
will generally be influenced by the rate at which the principal balances of
the related Student Loans are paid, which payment may be in the form of
scheduled amortization or prepayments. (For this purpose, the term
"prepayments" includes prepayments in full or in part (including pursuant to
Federal Consolidation Loans), as a result of (i) borrower default, death,
disability or bankruptcy, (ii) a closing or a false certification by the
borrower's school and (iii) subsequent liquidation or collection of Guarantee
Payments with respect thereto and as a result of Student Loans being
repurchased by the Seller or purchased by the Master Servicer for
administrative reasons.) All of the Student Loans are prepayable at any time
without penalty to the borrower. The rate of prepayment of Student Loans is
influenced by a variety of economic, social and other factors, including as
described below and in the applicable Prospectus Supplement. In general, the
rate of prepayments may tend to increase to the extent that alternative
financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the Student Loans.
However, because many of the Student Loans bear interest that either actually
or effectively is floating, it is impossible to predict whether changes in
prevailing interest rates will be similar to or will vary from changes in the
interest rates on the Student Loans. In addition, under certain circumstances,
the Seller will be obligated to repurchase, or the Master Servicer will be
obligated to purchase, Student Loans from a given Trust pursuant to the
related Loan Sale Agreement or Master Servicing Agreement, as applicable, as a
result of breaches of applicable representations and warranties or covenants.
See "Description of the Transfer and Servicing Agreements--Sale of Student
Loans; Representations and Warranties" and "--Servicer Covenants". See also
"Description of the Transfer and Servicing Agreements--Termination" regarding
the Master Servicer's option
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to purchase the Student Loans from a given Trust In addition, if specified in
the related Prospectus Supplement, the initial principal balance of the Notes
and the Certificates plus the Pre-Funded Amount, if any, as of the Closing
Date may exceed the initial pool balance of the Student Loans in the Trust. In
such case, amounts representing interest payments on Student Loans in excess
of certain amounts required to be paid to the Noteholders and the
Certificateholders, may be used to reduce the principal balance of the Notes
and the Certificates, thus reducing the weighted average life of the Notes and
the Certificates. Also, in the case of a Trust having a Funding Period or
Revolving Period, the addition of Student Loans to the Trust during such
period could affect the weighted average life of the Securities of the related
series. See "Description of the Transfer and Servicing Agreements--Additional
Fundings" herein.
Scheduled payments with respect to, and maturities of, the Student Loans may
be extended, including pursuant to applicable grace, deferral and forbearance
periods. The rate of payment of principal of the Notes and the Certificates
and the yield on the Notes and the Certificates may also be affected by the
rate of defaults resulting in losses on Student Loans, by the severity of
those losses and by the timing of those losses, which may affect the ability
of the Guarantors to make Guarantee Payments with respect thereto.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes or the Certificates of a
given series on each Distribution Date, since such amount will depend, in
part, on the amount of principal collected on the related pool of Student
Loans during the applicable Collection Period. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Student Loans
will be borne entirely by the Noteholders and the Certificateholders of a
given series. The related Prospectus Supplement will set forth certain
additional information with respect to the maturity and prepayment
considerations applicable to the particular pool of Student Loans and the
related series of Securities.
POOL FACTORS AND TRADING INFORMATION
Each of the "Note Pool Factor" for each class of Notes and the "Certificate
Pool Factor" for each class of Certificates (each, a "Pool Factor") will be a
seven-digit decimal which the Master Servicer will compute prior to each
Distribution Date indicating the remaining outstanding principal balance of
such class of Notes or the remaining Certificate Balance for such class of
Certificates, respectively, as of that Distribution Date (after giving effect
to distributions to be made on such Distribution Date), as a fraction of the
initial outstanding principal balance of such class of the Notes or the
initial Certificate Balance, for such class of Certificates, respectively.
Each Pool Factor will be 1.0000000 as of the Closing Date, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes or reductions of the Certificate Balance of the
applicable class of Certificates, as applicable. A Securityholder's portion of
the aggregate outstanding principal balance of the related class of Notes or
of the aggregate outstanding Certificate Balance for the related class of
Certificates, as applicable, is the product of (i) the original denomination
of that Securityholder's Note or Certificate and (ii) the applicable Pool
Factor.
Unless otherwise provided in the related Prospectus Supplement with respect
to each Trust, the Securityholders will receive reports on or about each
Distribution Date concerning the payments received on the Student Loans, the
Pool Balance (as such term is defined in the related Prospectus Supplement,
the "Pool Balance"), the applicable Pool Factor and various other items of
information. Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Certain Information Regarding the Securities--
Reports to Securityholders".
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust, one or more classes of Notes of a given series
will be issued pursuant to the terms of an Indenture, a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The following summary describes certain terms of the Notes and the
Indenture. The
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summary does not purport to be complete and is qualified in its entirety by
reference to all the provisions of the Notes and the Indenture.
Each class of Notes will initially be represented by one or more Notes, in
each case registered in the name of the nominee of DTC (together with any
successor depository selected by the Administrator, the "Depository") except
as set forth below or in the related Prospectus Supplement. The Notes will be
available for purchase in denominations of $1,000 and integral multiples
thereof in book-entry form only or as specified in the related Prospectus
Supplement. The Seller has been informed by DTC that DTC's nominee will be
Cede, unless another nominee is specified in the related Prospectus
Supplement. Accordingly, such nominee is expected to be the holder of record
of the Notes of each class. Unless and until Definitive Notes (as defined
below) are issued under the limited circumstances described herein or in the
related Prospectus Supplement, no Noteholder will be entitled to receive a
physical certificate representing a Note. All references herein and in the
related Prospectus Supplement to actions by Noteholders refer to actions taken
by DTC upon instructions from its participating organizations (the
"Participants") and all references herein to distributions, notices, reports
and statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes, as
the case may be, for distribution to Noteholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities".
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. Unless otherwise provided in
the related Prospectus Supplement, payments of interest on the Notes of such
series will be made prior to payments of principal thereon. Each class of
Notes may have a different Interest Rate, which may be a fixed, variable or
adjustable Interest Rate or any combination of the foregoing. The related
Prospectus Supplement will specify the Interest Rate for each class of Notes
of a given series or the method for determining such Interest Rate. See also
"Certain Information Regarding the Securities--Fixed Rate Securities" and "--
Floating Rate Securities". One or more classes of Notes of a series may be
redeemable in whole or in part under the circumstances specified in the
related Prospectus Supplement, including as a result of the Seller's
exercising its option to purchase the related Student Loans. The date or dates
on which interest and principal will be payable with respect to Securities of
a given Trust will be specified in the related Prospectus Supplement (each
such date, a "Distribution Date").
Unless otherwise specified in the related Prospectus Supplement, payments to
Noteholders of all classes within a series in respect of interest will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
Distribution Date in which case each class of Noteholders will receive its
ratable share (based upon the aggregate amount of interest due to such class
of Noteholders) of the aggregate amount available to be distributed in respect
of interest on the Notes of such series. See "Description of the Transfer and
Servicing Agreements--Distributions" and "--Credit and Cash Flow Enhancement".
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal
and interest, and any schedule or formula or other provisions applicable to
the determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
In the case of a series of Notes relating to a Trust having a Pre-Funding
Account or Collateral Reinvestment Account, the Notes of such series will be
redeemed in part on the Distribution Date on or immediately following the last
day of the related Funding Period or Revolving Period, respectively, in the
event that any amount remains
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<PAGE>
on deposit in the applicable account after giving effect to all Additional
Fundings on or prior to such date, in an aggregate principal amount described
in the related Prospectus Supplement.
See "Description of the Transfer and Servicing Agreements--Credit and Cash
Flow Enhancement--Reserve Account" for a description of the Reserve Account
and the distribution of amounts in excess of the Specified Reserve Account
Balance (as defined in the related Prospectus Supplement).
THE INDENTURE
Modification of Indenture. With respect to each Trust, with the consent of
the holders of a majority of the outstanding Notes of the related series, the
Indenture Trustee and the Trust may execute a supplemental indenture to add
provisions to, or change in any manner or eliminate any provisions of, the
Indenture with respect to the Notes, or to modify (except as provided below)
in any manner the rights of the related Noteholders.
Without the consent of the holder of each such outstanding Note affected
thereby, however, no supplemental indenture will (i) change the due date of
any installment of principal of or interest on any such Note or reduce the
principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change any place of payment where or
the coin or currency in which any such Note or any interest thereon is
payable, (ii) impair the right to institute suit for the enforcement of
certain provisions of the related Indenture regarding payment, (iii) reduce
the percentage of the aggregate amount of the outstanding Notes of such
series, the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the related Indenture or
of certain defaults thereunder and their consequences as provided for in such
Indenture, (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, the Seller, an
affiliate of either of them or any obligor on such Notes, (v) reduce the
percentage of the aggregate outstanding amount of such Notes, the consent of
the holders of which is required to direct the related Eligible Lender Trustee
on behalf of the applicable Trust to sell or liquidate the Student Loans if
the proceeds of such sale would be insufficient to pay the principal amount
and accrued but unpaid interest on the outstanding Notes of such series, (vi)
decrease the percentage of the aggregate principal amount of such Notes
required to amend the sections of the related Indenture which specify the
applicable percentage of aggregate principal amount of such Notes necessary to
amend the related Indenture or certain other related agreements or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien
of the related Indenture with respect to any of the collateral for the Notes
of such series or, except as otherwise permitted or contemplated in such
Indenture, terminate the lien of such Indenture on any such collateral or
deprive the holder of any Note of the security afforded by the lien of such
Indenture.
The applicable Trust and the related Indenture Trustee may also enter into
supplemental indentures without obtaining the consent of Noteholders of such
series, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the related Indenture or of modifying
in any manner the rights of Noteholders of such series so long as such action
will not, in the opinion of counsel satisfactory to the applicable Indenture
Trustee, materially and adversely affect the interest of any Noteholder of
such series and in the circumstances described under the heading "Assumption
of Signet's Obligations".
Events of Default; Rights Upon Event of Default. With respect to the Notes
of a given series, unless otherwise specified in the related Prospectus
Supplement, an "Event of Default" under the related indenture will consist of
the following: (i) a default for five days or more in the payment of any
interest on any such Note after the same becomes due and payable; (ii) a
default in the payment of the principal of or any installment of the principal
of any such Note when the same becomes due and payable; (iii) a default in the
observance or performance of any covenant or agreement of the applicable Trust
made in the related Indenture and the continuation of any such default for a
period of 60 days after notice thereof is given to the applicable Trust by the
applicable Indenture Trustee or to the applicable Trust and the applicable
Indenture Trustee by the holders of at least 25% in principal amount of such
Notes then outstanding; provided, however, that if the Trust demonstrates that
it is making a good faith attempt to cure such default, such 60-day period may
be extended
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by the Indenture Trustee to 120 days; (iv) any representation or warranty made
by the applicable Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in
a material respect as of the time made, and such breach not having been cured
within 60 days after notice thereof is given to such Trust by the applicable
Indenture Trustee or to such Trust and the applicable Indenture Trustee by the
holders of at least 25% in principal amount of the Notes of such series then
outstanding; provided, however, that if the Trust demonstrates that it is
making a good faith attempt to cure such breach, such 60-day period may be
extended by the Indenture Trustee to 120 days or (v) certain events of
bankruptcy, insolvency, receivership or liquidation of such Trust. However,
the amount of principal required to be distributed to Noteholders of such
series under the related Indenture on any Distribution Date will generally be
limited to amounts available after payment of all prior obligations of such
Trust. Therefore, unless otherwise specified in the related Prospectus
Supplement, the failure to pay principal on a class of Notes generally will
not result in the occurrence of an Event of Default until the final scheduled
Distribution Date for such class of Notes. If, with respect to any series of
Notes, interest is paid at a variable rate based on an index, the related
Prospectus Supplement may provide that, in the event that, for any
Distribution Date, the Interest Rate as calculated based on the index is less
than an alternate rate calculated for such Distribution Date based on interest
collections on the Student Loans (the amount of such difference, the "Index
Shortfall Carryover"), the Interest Rate for such Distribution Date shall be
such alternate rate and the Interest Shortfall Carryover shall be payable as
described in such Prospectus Supplement. Unless otherwise provided in such
Prospectus Supplement, payment of the Index Shortfall Carryover shall be lower
in priority than payment of interest on the Notes at the Interest Rate
(whether the Interest Rate is based on the index or such alternate rate) and,
accordingly, the nonpayment of the Interest Shortfall Carryover on any
Distribution Date shall not generally constitute a default in the payment of
interest on such Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of at least 66
2/3% in principal amount of such Notes then outstanding may declare the
principal of such Notes to be immediately due and payable. Unless otherwise
specified in the related Prospectus Supplement, such declaration may be
rescinded by the holders of a majority in principal amount of such notes then
outstanding if (i) the Eligible Lender Trustee on behalf of the related Trust
has paid or deposited with the Indenture Trustee a sum sufficient to pay (A)
all payments of principal of and interest on all Notes and all other amounts
that would then be due under the related Indenture or upon such Notes if the
Event of Default giving rise to such acceleration had not occurred and (B) all
sums paid or advanced by the Indenture Trustee under the related Indenture and
the reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee and its agents and counsel and (ii) all Events of Default,
other than the nonpayment of the principal of the Notes that has become due
solely by such acceleration, have been cured or, under the circumstances
described below, waived.
If the Notes of any series have been declared to be due and payable
following an Event of Default with respect thereto, the related Indenture
Trustee may, in its discretion, exercise remedies as a secured party, require
the related Eligible Lender Trustee to sell the Student Loans or elect to have
the related Eligible Lender Trustee maintain possession of the Student Loans
and continue to apply collections with respect to such Student Loans as if
there had been no declaration of acceleration. Unless otherwise specified in
the related Prospectus Supplement, however, the related Indenture Trustee is
prohibited from directing the related Eligible Lender Trustee to sell the
Student Loans following an Event of Default, other than a default in the
payment of any principal or a default for five days or more in the payment of
any interest on any Note with respect to any series, unless (i) the holders of
all such outstanding Notes consent to such sale, (ii) the proceeds of such
sale are sufficient to pay in full the principal of and the accrued interest
on such outstanding Notes at the date of such sale and any Index Shortfall
Carryover, to the extent specified in the related Prospectus Supplement or
(iii) the related Indenture Trustee determines that the collections on the
Student Loans would not be sufficient on an ongoing basis to make all payments
on such Notes as such payments would have become due if such obligations had
not been declared due and payable, and the related Indenture Trustee obtains
the consent of the holders of at least 66 2/3% of the aggregate principal
amount of such Notes then outstanding.
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Subject to the provisions of the applicable Indenture relating to the duties
of the related Indenture Trustee, if an Event of Default should occur and be
continuing with respect to a series of Notes, the related Indenture Trustee
will be under no obligation to exercise any of the rights or powers under the
applicable Indenture at the request or direction of any of the holders of such
Notes, if such Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be
incurred by it in complying with such request. Subject to such provisions for
indemnification and certain limitations contained in the related Indenture,
the holders of a majority in principal amount of the outstanding Notes of a
given series will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to such Indenture Trustee
and the holders of a majority in principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of the applicable Indenture that cannot be
modified without the waiver or consent of all the holders of such outstanding
Notes.
Unless otherwise specified in the related Prospectus Supplement, no holder
of Notes of any series will have the right to institute any proceeding with
respect to the related Indenture, unless (i) such holder previously has given
to the applicable Indenture Trustee written notice of a continuing Event of
Default, (ii) the holders of not less than 25% in principal amount of such
outstanding Notes have requested in writing that such Indenture Trustee
institute such proceeding in its own name as Indenture Trustee, (iii) such
holder or holders have offered such Indenture Trustee reasonable indemnity,
(iv) such Indenture Trustee has for 60 days failed to institute such
proceeding and (v) no direction inconsistent with such written request has
been given to such Indenture Trustee during such 60-day period by the holders
of a majority in principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders will
covenant that they will not at any time institute against the applicable Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to any Trust, none of the related Indenture Trustee, the
Seller, the Administrator, the Master Servicer or the Eligible Lender Trustee
in its individual capacity, nor any holder of a Certificate representing an
ownership interest in the applicable Trust, nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the Notes
or for the agreements of the Trust contained in the Indenture.
Certain Covenants. Except as described under "Assumption of Signet's
Obligations," each Indenture will provide that the related Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed
by or surviving such consolidation or merger is organized under the laws of
the United States of America, any state or the District of Columbia, (ii) such
entity expressly assumes such Trust's obligation to make due and punctual
payments upon the Notes of the related series and the performance or
observance of every agreement and covenant of such Trust under the related
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) such Trust has been
advised that the rating of the Notes and the Certificates of the related
series would not be reduced or withdrawn by the Rating Agencies as a result of
such merger or consolidation and (v) such Trust has received an opinion of
counsel to the effect that such consolidation or merger would have no material
adverse federal or Maryland state income tax consequence to such Trust or to
any Certificateholder or Noteholder of the related series.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements
or certain related documents (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of such Trust,
(ii) claim any credit on or make any deduction from the principal and interest
payable in respect of the Notes of the related series (other than amounts
withheld under the Code or applicable state law) or assert any claim against
any present or former holder of such Notes because of the payment of taxes
levied or assessed upon such Trust, (iii) except as contemplated by the
Related Documents, dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the applicable Indenture to be impaired or permit
any person to be released from any
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covenants or obligations with respect to such Notes under the applicable
Indenture except as may be expressly permitted thereby or (v) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of the
Trust or any part thereof, or any interest therein or the proceeds thereof,
except as expressly permitted by the Related Documents.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "Formation of the
Trust--The Trust". No Trust will incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes of a related series and
the applicable Indenture or otherwise in accordance with the Related
Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the applicable Indenture Trustee a written statement as to the
fulfillment of its obligations under the related Indenture.
Indenture Trustee's Annual Report. Each Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to, among
other things, its eligibility and qualification to continue as such Indenture
Trustee under the applicable Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness
owing by such Trust to the applicable Indenture Trustee in its individual
capacity, the property and funds physically held by the applicable Indenture
Trustee as such and any action taken by it that materially affects the related
Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
The Indenture Trustee. The Indenture Trustee for a series of Notes will be
specified in the related Prospectus Supplement. The Indenture Trustee for any
series may resign at any time, in which event the Issuer will be obligated to
appoint a successor trustee for such series. The Issuer may also remove any
such Indenture Trustee if such Indenture Trustee ceases to be eligible to
continue as such under the related Indenture or if such Indenture Trustee
becomes insolvent. In such circumstances, the Issuer will be obligated to
appoint a successor trustee for the applicable series of Notes. Any
resignation or removal of the Indenture Trustee and appointment of a successor
trustee for any series of Notes does not become effective until acceptance of
the appointment by the successor trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series will be issued pursuant to the terms of a Trust Agreement, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summary describes certain terms of the
Certificates and the Trust Agreement. The summary does not purport to be
complete and is qualified in its entirety by reference to all the provisions
of the Certificates and the Trust Agreement.
Each class of Certificates will initially be represented by a single
Certificate registered in the name of the Depository, except as set forth
below. Except for the Certificates of a given series purchased by the Company,
the Certificates will be available for purchase in denominations of $1,000 and
integral multiples of $1,000 in excess thereof in book-entry form only, or as
set forth in the related Prospectus Supplement. The Seller has been informed
by DTC that DTC's nominee will be Cede, unless another nominee is specified in
the related Prospectus Supplement. Accordingly, such nominee is expected to be
the holder of record of the Certificates of any series that are not purchased
by the Company. Unless and until Definitive Certificates (as defined below)
are issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Certificateholder (other than the Company) will be
entitled to receive a physical certificate representing a
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Certificate. All references herein and in the related Prospectus Supplement to
actions by Certificateholders refer to actions taken by DTC upon instructions
from the Participants and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the registered holder of the Certificates, as the case
may be, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities".
Certificates of a given series owned by the Company or its affiliates will be
entitled to equal and proportionate benefits under the applicable Trust
Agreement, except that, assuming that all Certificates of a given series are
not all owned by the Company and its affiliates, such Certificates will be
deemed not to be outstanding for the purpose of determining whether the
requisite percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents (other than, in the event that the related Prospectus Supplement
specifies that the related Trust may or shall terminate upon the occurrence of
an event of insolvency with respect to the Company, any action taken by
Certificateholders with respect thereto).
PRINCIPAL AND INTEREST IN RESPECT OF THE CERTIFICATES
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest of each class of Certificates of a given
series will be described in the related Prospectus Supplement. Distributions
of interest on such Certificates will be made on the Distribution Dates
specified in the related Prospectus Supplement and will be made prior to
distributions with respect to principal of such Certificates. Distributions
with respect to principal on the Certificates will be made on the Distribution
Dates specified in the related Prospectus Supplement. Each class of
Certificates may have a different Pass-Through Rate, which may be a fixed,
variable or adjustable Pass-Through Rate or any combination of the foregoing.
The related Prospectus Supplement will specify the Pass-Through Rate for each
class of Certificates of a given series or the method for determining such
Pass-Through Rate. See also "Certain Information Regarding the Securities--
Fixed Rate Securities" and "--Floating Rate Securities". Unless otherwise
provided in the related Prospectus Supplement, distributions in respect of the
Certificates of a given series may be subordinate to payments in respect of
the Notes of such series as more fully described in the related Prospectus
Supplement. Distributions in respect of interest on and principal of any class
of Certificates will be made on a pro rata basis among all the
Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount
of distributions in respect of interest and principal, and any schedule or
formula or other provisions applicable to the determination thereof, of each
such class shall be as set forth in the related Prospectus Supplement.
In the case of a series of Certificates relating to a Trust having a Pre-
Funding Account or Collateral Reinvestment Account, cash distributions to
Certificateholders of such series may be made on the Distribution Date on or
immediately following the last day of the related Funding Period or Revolving
Period, respectively, in the event that any amount remains on deposit in the
applicable account after giving effect to all Additional Fundings on or prior
to such date, in an aggregate principal amount described in the related
Prospectus Supplement.
See "Description of the Transfer and Servicing Agreements--Credit and Cash
Flow Enhancement--Reserve Account" for a description of the Reserve Account
and the distribution of amounts in excess of the Specified Reserve Account
Balance (as defined in the related Prospectus Supplement).
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities may bear interest at a fixed rate per annum ("Fixed
Rate Securities") or at a variable or adjustable rate per annum ("Floating
Rate Securities"), as more fully described below and in the applicable
Prospectus Supplement. Each class of Fixed Rate Securities will bear interest
at the applicable per
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annum Interest Rate or Pass-Through Rate, as the case may be, specified in the
applicable Prospectus Supplement. Unless otherwise set forth in the applicable
Prospectus Supplement, interest on each class of Fixed Rate Securities will be
computed on the basis of a 360-day year of twelve 30-day months. See
"Description of the Notes--Principal and Interest on the Notes" and
"Description of the Certificates--Principal and Interest in Respect of the
Certificates".
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate a Base Rate for a given
Floating Rate Security based on LIBOR, commercial paper rates, Federal funds
rates, U.S. Government treasury securities rates, negotiable certificates of
deposit rates or another rate or rates as set forth in such Prospectus
Supplement.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest period
and (ii) a minimum limitation, or floor, on the rate at which interest may
accrue during any interest period. In addition to any maximum interest rate
that may be applicable to any class of Floating Rate Securities, the interest
rate applicable to any class of Floating Rate Securities will in no event be
higher than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will be
issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class
of Floating Rate Securities issued with respect thereto. The applicable
Prospectus Supplement will set forth the identity of the Calculation Agent for
each such class of Floating Rate Securities of a given series, which may be
the Administrator, the Eligible Lender Trustee or the Indenture Trustee with
respect to such series. All determinations of interest by the Calculation
Agent shall, in the absence of manifest error, be conclusive for all purposes
and binding on the holders of Floating Rate Securities of a given class.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the rate of interest on a
Floating Rate Security will be rounded, if necessary, to the nearest 1/100,000
of 1% (.0000001), with five one-millionths of a percentage point rounded
upward.
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the UCC and a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the related
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Indenture Trustee or the related Eligible Lender Trustee, as applicable (the
"Applicable Trustee"), through Participants and Indirect Participants. Under a
book-entry format, Securityholders may experience some delay in their receipt
of payments, since such payments will be forwarded by the Applicable Trustee
to DTC's nominee. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Securityholders.
Except for the Company with respect to any series of Securities, it is
anticipated that the only "Securityholder", "Certificateholder" and
"Noteholder" will be DTC's nominee. Securityholders will not be recognized by
the Applicable Trustee as Noteholders or Certificateholders, as such terms are
used in each Indenture and each Trust Agreement, respectively, and
Securityholders will be permitted to exercise the rights of Securityholders
only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments
on behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Securityholder under the related Indenture or the related Trust
Agreement, as the case may be, only at the direction of one or more
Participants to whose accounts with DTC the Securities are credited. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
Except as required by law, neither the Administrator nor the Applicable
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Securities
held by DTC's nominee or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
Except with respect to the Certificates of a given series that may be
purchased by the Company, the Notes and the Certificates of a given series
will be issued in fully registered, certificated form ("Definitive Notes" and
"Definitive Certificates", respectively, and collectively referred to herein
as "Definitive Securities") to Noteholders or Certificateholders or their
respective nominees, rather than to DTC or its nominee, only if (i) the
related Administrator advises the Applicable Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to the Securities and the Administrator is unable to
locate a qualified successor, (ii) the Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of
an Event of Default or a Servicer Default, Securityholders representing at
least a majority of the outstanding principal amount of the Notes or the
Certificates, as the case may be, of such series advise the Applicable Trustee
through DTC in writing that the continuation of a book-entry system through
DTC (or a successor thereto) with respect to such Notes or Certificates is no
longer in the best interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the Definitive Securities
representing the corresponding Securities and receipt of instructions for re-
registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
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Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement,
as the case may be, directly to holders of Definitive Securities in whose
names the Definitive Securities were registered at the close of business on
the applicable date of record specified for such Securities in the related
Prospectus Supplement. Such distributions will be made by check mailed to the
address of such holder as it appears on the register maintained by the
Applicable Trustee. The final payment on any such Definitive Security,
however, will be made only upon presentation and surrender of such Definitive
Security at the office or agency specified in the notice of final distribution
to applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement, holders of
Notes evidencing not less than 25% of the aggregate outstanding principal
balance of such Notes may, by written request to the related Indenture
Trustee, obtain access to the list of all Noteholders maintained by such
Indenture Trustee for the purpose of communicating with other Noteholders with
respect to their rights under the related Indenture or such Notes. Such
Indenture Trustee may elect not to afford the requesting Noteholders access to
the list of Noteholders if it agrees to mail the desired communication or
proxy, on behalf and at the expense of the requesting Noteholders, to all
Noteholders of such series.
Unless otherwise specified in the related Prospectus Supplement, three or
more Certificateholders of such series or one or more holders of such
Certificates evidencing not less than 25% of the Certificate Balance of such
Certificates may, by written request to the related Eligible Lender Trustee,
obtain access to the list of all Certificateholders for the purpose of
communicating with other Certificateholders with respect to their rights under
the related Trust Agreement or under such Certificates.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on each Distribution Date, the
Applicable Trustee will provide to Securityholders of record as of the related
date of record a statement setting forth substantially the same information as
is required to be provided on the periodic report provided to the related
Indenture Trustee and the related Trust described under "Description of
Transfer and Servicing Agreements--Statements to Indenture Trustee and Trust".
The statements provided to Securityholders will not constitute financial
statements prepared in accordance with generally accepted accounting
principles.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year was
a Securityholder with respect to such Trust and received any payment thereon,
a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Federal
Income Tax Consequences".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of certain terms of each Loan Sale Agreement and
Master Servicing Agreement, pursuant to which the related Eligible Lender
Trustee on behalf of a Trust will purchase Student Loans from the Seller and
the Master Servicer will service the same; each Administration Agreement,
pursuant to which the Administrator will undertake certain administrative
duties with respect to a Trust and the Student
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Loans; and each Trust Agreement, pursuant to which a Trust will be created and
the related Certificates will be issued (collectively, the "Transfer and
Servicing Agreements"). Forms of each of the Transfer and Servicing Agreements
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The summary does not purport, however, to be complete
and is qualified in its entirety by reference to all of the provisions of the
Transfer and Servicing Agreements.
SALE OF STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
On or prior to the Closing Date specified with respect to any given Trust in
the related Prospectus Supplement (the "Closing Date"), the Seller will sell
and assign to the related Eligible Lender Trustee on behalf of such Trust,
without recourse, its entire interest in the Student Loans, all collections
received and to be received with respect thereto for the period on and after
the Cutoff Date pursuant to the Loan Sale Agreement. Each Student Loan will be
identified in schedules appearing as an exhibit to such Loan Sale Agreement.
Each Eligible Lender Trustee will, concurrently with such sale and assignment,
execute, authenticate (or, in the case of Notes, cause the Indenture Trustee
to authenticate) and deliver the related Certificates and Notes. The net
proceeds received from the sale of the related Notes and Certificates will be
applied to the purchase of the Student Loans.
In each Loan Sale Agreement, the Seller will make certain representations
and warranties with respect to the Student Loans transferred to a Trust for
the benefit of the Certificateholders and the Noteholders of a given series,
including, among other things, that (i) each Student Loan, on the date on
which it is transferred to such Trust, is free and clear of all security
interests, liens, charges and encumbrances and no offsets, defenses or
counterclaims have been asserted or threatened; (ii) the information provided
with respect to the Student Loans is true and correct as of the Cutoff Date
and (iii) each Student Loan, at the time it was originated, complied and, at
the Closing Date, complies in all material respects with applicable federal
and state laws (including, without limitation, the Act (in the case of Federal
Student Loans), consumer credit, truth in lending, equal credit opportunity
and disclosure laws) and applicable restrictions imposed by FFELP, in the case
of Federal Student Loans, the applicable private guarantee program, in the
case of Private Student Loans, or, in all cases, any Guarantee Agreement.
Following the discovery by or notice to the Seller of a breach of any
representation or warranty with respect to any Student Loan that materially
and adversely affects the interests of the related Certificateholders or the
Noteholders in such Student Loan (it being understood that any such breach
that does not affect any Guarantor's obligation to guarantee payment of such
Student Loan will not be considered to have such a material adverse effect),
the Seller will, unless such breach is cured within the period specified in
the related Loan Sale Agreement, repurchase such Student Loan from the related
Eligible Lender Trustee, as of the first day following the end of such period
that is the last day of a Collection Period, at a price equal to the unpaid
principal balance owed by the applicable borrower thereon plus (i) accrued
interest thereon to the day of repurchase and (ii) any premium paid to the
Seller in the initial sale of such Student Loan to the Trust (the "Purchase
Amount") to the extent specified in the related Prospectus Supplement.
Alternatively, if so specified in the related Prospectus Supplement, the
Seller may, at its option, remit all or a portion of the Purchase Amount by
substituting into the related Trust a Student Loan that meets certain criteria
set forth in the related Loan Sale Agreement for the Student Loan as to which
the breach has occurred. In addition, the Seller will reimburse the related
Trust for any accrued interest amounts that a Guarantor refuses to pay
pursuant to its Guarantee Agreement, or for any Interest Subsidy Payments and
Special Allowance Payments that are lost or that must be repaid to the
Department in the case of Federal Student Loans, with respect to a Student
Loan as a result of a breach of any such representation or warranty by the
Seller. The repurchase, substitution and reimbursement obligations of the
Seller will constitute the sole remedy available to or on behalf of a Trust,
the related Certificateholders or the related Noteholders for any such uncured
breach. The Seller's repurchase and reimbursement obligations are contractual
obligations pursuant to a Loan Sale Agreement that may be enforced against the
Seller, but the breach of which will not constitute an Event of Default.
To assure uniform quality in servicing and to reduce administrative costs,
the Master Servicer will be appointed custodian of the promissory notes
representing the Student Loans and any other related documents by
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the related Eligible Lender Trustee on behalf of each Trust. The Seller's and
the Master Servicer's records and computer systems will reflect the sale and
assignment by the Seller of the Student Loans to the related Eligible Lender
Trustee on behalf of the related Trust, and Uniform Commercial Code ("UCC")
financing statements reflecting such sale and assignment will be filed by the
Administrator.
ADDITIONAL FUNDINGS
In the case of a Trust having a Pre-Funding Account or a Collateral
Reinvestment Account, such Trust will use funds on deposit in the Pre-Funding
Account from time to time during the related Funding Period or Revolving
Period, respectively, (i) to deposit into the Collection Account in lieu of
collections of interest on certain of the Student Loans to the extent such
interest is not paid currently but will be capitalized and added to the
principal balance of such Student Loans and (ii) to fund the addition of
Student Loans to the Trust under the circumstances and having the
characteristics described in the related Prospectus Supplement ("Additional
Fundings"). Such additional Student Loans may be purchased by the Trust from
the Seller or may be originated by the Trust, if and to the extent specified
in the related Prospectus Supplement.
There can be no assurance that substantially all of the amounts on deposit
in any Pre-Funding Account or Collateral Reinvestment Account will be expended
during the related Funding Period or Revolving Period, respectively. If the
amount initially deposited into a Pre-Funding Account or Collateral
Reinvestment Account for a series has not been reduced to zero by the end of
the related Funding Period or Revolving Period, respectively, the amounts
remaining on deposit therein will be distributed to the related
Securityholders in the amounts described in the related Prospectus Supplement.
If and to the extent specified in the related Prospectus Supplement, the
related Trust may use distributions on the Student Loans, or may exchange
Student Loans with the Seller, in order to pay for Additional Fundings after
the Funding Period.
ACCOUNTS
With respect to each Trust, the Administrator will establish one or more
accounts, in the name of the Indenture Trustee on behalf of the related
Noteholders and Certificateholders, into which all payments made on or with
respect to the related Student Loans will be deposited (the "Collection
Account"). Any other accounts to be established with respect to a Trust,
including any Reserve Account and any Pre-Funding Account and any Collateral
Reinvestment Account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, any Reserve
Account, any Pre-Funding Account and any Collateral Reinvestment Account and
any other accounts identified as such in the related Prospectus Supplement
(collectively, the "Trust Accounts") will be invested solely as provided in
the applicable Transfer and Servicing Agreements in Eligible Investments.
"Eligible Investments" shall mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence: (a) direct obligations of, and obligations fully
guaranteed as to timely payment of principal and interest by, the United
States of America, (b) demand deposits, time deposits or certificates of
deposit (having original maturities of no more than 365 days) of depository
institutions or trust companies incorporated under the laws of the United
States of America or any state thereof (or domestic branches of foreign banks)
and subject to supervision and examination by federal or state banking or
depository institution authorities, provided that at the time of the Trust's
investment or contractual commitment to invest therein, the short-term debt
rating of such depository institution or trust company shall have a rating
acceptable to each rating agency which, at the request of the Seller, is
rating the related series of Securities (a "Rating Agency"), (c) commercial
paper or other short-term obligations having, at the time of the Trust's
investment or contractual commitment to invest therein, a rating acceptable to
each Rating Agency, (d) demand deposits, time deposits and certificates of
deposit which are fully insured by the FDIC, with a party the commercial paper
of which has a credit rating acceptable to each Rating Agency, (e) notes or
bankers' acceptances (having original maturities of no more than 365 days)
issued by any depository institution or trust company referred to in (b)
above, (f) investments in money market funds
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having a rating acceptable to each Rating Agency, (g) time deposits (having
maturities of not more than 30 days), other than as referred to in clause (d)
above, with a party the commercial paper of which has a credit rating
acceptable to each Rating Agency or (h) any other investments approved in
writing by each Rating Agency. An investment by the Trust in Eligible
Investments will not cause a Trust to be required to register under the
Investment Company Act of 1940. Except as described below or in the related
Prospectus Supplement, Eligible Investments are limited to obligations or
securities that mature not later than the business day immediately preceding
the next applicable Distribution Date. However, to the extent permitted by the
Rating Agencies, funds in any Reserve Account may be invested in securities
that will not mature prior to the date of the next distribution with respect
to such Securities and will not be sold to meet any shortfalls. Thus, the
amount of cash in any Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from any
Reserve Account to cover shortfalls in collections on the related Student
Loans (as provided in the related Prospectus Supplement) exceeds the amount of
cash in the Reserve Account, a temporary shortfall in the amounts distributed
to the related Noteholders or Certificateholders could result, which could, in
turn, increase the average life of the Notes or the Certificates of such
series. Except as otherwise specified in the related Prospectus Supplement,
investment earnings on funds deposited in the Trust Accounts, net of losses
and investment expenses (collectively, "Investment Earnings"), will be
deposited in the Collection Account on each Distribution Date and will be
treated as collections of interest on the related Student Loans.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade. "Eligible Institution" means either Signet Trust Company or
a depository institution organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank), (i) which has either (A) a long-term
unsecured debt rating acceptable to the Rating Agencies or (B) a short-term
unsecured debt rating or certificate of deposit rating acceptable to the
Rating Agencies and (ii) whose deposits are insured up to applicable limits by
the FDIC.
SERVICING PROCEDURES
Pursuant to each Master Servicing Agreement, the Master Servicer has agreed
to be responsible for servicing, and performing all other related tasks with
respect to, all the Student Loans acquired from time to time on behalf of each
Trust. The Master Servicer is required pursuant to the related Master
Servicing Agreement to be responsible for performing all services and duties
customary to the servicing of Student Loans (including all collection
practices), and to do so in compliance with, and to otherwise comply with, all
standards and procedures provided for in the Act, the Guarantee Agreements and
all other applicable federal and state laws. The Master Servicer is also
required to maintain its eligibility as a third-party servicer under the Act.
The Master Servicer may from time to time perform a portion of its servicing
obligations under the applicable Loan Sale Agreement through Subservicing
Agreements with unrelated third-party student loan servicers approved by the
Rating Agencies ("Subservicers"). Notwithstanding the provisions of any
Subservicing Agreement, each Master Servicing Agreement will provide that the
Master Servicer will remain liable for its servicing duties and obligations
under the Master Servicing Agreement as if the Master Servicer were servicing
the Student Loans.
The Master Servicing Agreement provides that the Master Servicer shall
terminate all of the rights and obligations of a Subservicer with respect to
all Student Loans being serviced by such Subservicer in the event of a breach
by such Subservicer of a Subservicing Agreement if the Master Servicer
reasonably considers such termination to be in the best interests of the
Certificateholders and Noteholders. Upon termination or expiration of any
Subservicing Agreement, the Master Servicer has agreed to take all appropriate
steps to maintain adequate provisions for the administration, servicing,
custody and collection of the Student Loans, including without limitation, the
appointment of any successor Subservicer, as the case may be, pursuant to the
terms of a
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Subservicing Agreement which satisfies the criteria described above. In the
event a Subservicer is removed, the Master Servicer will continue to be
responsible for servicing the related Student Loans. In the event the Master
Servicer is terminated, the successor Master Servicer will succeed to all of
the rights and obligations of the predecessor Master Servicer under each of
the Subservicing Agreements, including the right to terminate any such
Subservicer as described above. The termination of the Master Servicer may not
result in the termination of any Subservicer.
Without limiting the foregoing, the responsibilities of the Master Servicer
with respect to each Trust under the related Master Servicing Agreement
include, but are not limited to, the following: collecting and depositing into
the Collection Account all payments with respect to the Student Loans,
including claiming and obtaining any Guarantee Payments, any Interest Subsidy
Payments and Special Allowance Payments with respect to Student Loans,
responding to inquiries from borrowers on the Student Loans, investigating
delinquencies and sending out statements and payment coupons. In addition, the
Master Servicer will keep ongoing records with respect to such Student Loans
and collections thereon and will furnish monthly and annual statements with
respect to such information to the Administrator, in accordance with the
Master Servicer's customary practices with respect to the Seller and as
otherwise required in the related Master Servicing Agreement.
PAYMENTS ON STUDENT LOANS
With respect to each Trust, the Master Servicer will deposit all payments on
Student Loans and all proceeds of Student Loans received by it during each
collection period specified in the related Prospectus Supplement (each, a
"Collection Period") into the related Collection Account within two business
days of receipt thereof. The Eligible Lender Trustee will deposit all Interest
Subsidy Payments and all Special Allowance Payments with respect to the
Federal Student Loans received by it during each Collection Period into the
Collection Account within two business days of receipt thereof.
However, in the event that the Administrator satisfies certain requirements
and the Rating Agencies affirm their ratings of the Notes and the Certificates
at the initial level, then so long as Signet is the Administrator and provided
that (i) there exists no Administrator Default (as described below) and (ii)
each other condition as may be specified by the Rating Agencies is satisfied,
the Master Servicer and the Eligible Lender Trustee will pay all the amounts
referred to in the preceding paragraph that would otherwise be deposited into
the Collection Account to the Administrator, and the Administrator will not be
required to deposit such amounts into the Collection Account until on or
before the business day immediately preceding each Distribution Date. In such
event, the Administrator will deposit the aggregate Purchase Amount of Student
Loans repurchased by the Seller and purchased by the Master Servicer into the
Collection Account on or before the business day preceding each Distribution
Date. Pending deposit into the Collection Account, collections may be invested
by the Administrator at its own risk and for its own benefit, and will not be
segregated from other funds of the Administrator.
SERVICER COVENANTS
With respect to each Trust, in the related Master Servicing Agreement, the
Master Servicer will covenant that: (a) it will duly satisfy all obligations
on its part to be fulfilled under or in connection with the Student Loans,
maintain in effect all qualifications required in order to service the Student
Loans and comply in all material respects with all requirements of law in
connection with servicing the Student Loans, the failure to comply with which
would have a materially adverse effect on the related Certificateholders or
Noteholders; (b) it will not permit any rescission or cancellation of a
Student Loan except as ordered by a court of competent jurisdiction or other
government authority or as otherwise consented to by the related Eligible
Lender Trustee and the related Indenture Trustee; (c) it will not, nor will it
permit any Subservicer to, impair the rights of the related Certificateholders
and the related Noteholders in the Student Loans and (d) it will not, nor will
it permit any Subservicer to, reschedule, revise, defer or otherwise
compromise with respect to payments due on any Student Loan except pursuant to
any applicable deferral or forbearance periods or otherwise in accordance with
its guidelines for servicing student loans in general and those of the Seller
in particular and any applicable FFELP, private guarantee program or Guarantor
requirements.
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Under the terms of each Master Servicing Agreement, if the Administrator or
the Master Servicer discovers, or receives written notice, that any covenant
of the Master Servicer set forth above has not been complied with in all
material respects and such noncompliance has not been cured within 120 days
thereafter and has a materially adverse effect on the interest of the related
Certificateholders or Noteholders in any Student Loan to the extent specified
in the related Prospectus Supplement, unless such breach is cured or unless
the Seller is otherwise required to purchase the related Student Loan as a
result of a breach of the Seller's warranties in the related Loan Sale
Agreement, the Master Servicer will arrange for the purchase of such Student
Loan as of the first day following the end of such 120-day period that is the
last day of a Collection Period. In that event, the Master Servicer will
arrange to be deposited into the Collection Account an amount equal to the
Purchase Amount of such Student Loan and the related Trust's interest in any
such purchased Student Loan will be automatically assigned to the Master
Servicer or its designee. Upon such assignment, the Master Servicer or its
designee will be entitled to all payments made on the Student Loan. In
addition, if so specified in the related Prospectus Supplement, the Master
Servicer will reimburse the related Trust for any accrued interest amounts
that a Federal Guarantor refuses to pay pursuant to its Federal Guarantee
Agreement, or for any Interest Subsidy Payments and Special Allowance Payments
that are lost or that must be repaid to the Department, with respect to a
Federal Student Loan as a result of a breach of any such covenant of the
Master Servicer. The Master Servicer's purchase and reimbursement obligations
are contractual obligations pursuant to a Master Servicing Agreement that may
be enforced against the Master Servicer, but the breach of which will not
constitute an Event of Default.
SERVICER COMPENSATION
Unless otherwise specified in the related Prospectus Supplement with respect
to any Trust, the Master Servicer will be entitled to receive the Servicing
Fee for each Collection Period (as set forth in the related Prospectus
Supplement) together with any other administrative fees and similar charges
specified in the related Prospectus Supplement, as compensation for performing
the functions as servicer for the related Trust described above (the
"Servicing Fee"). The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates) will be paid
prior to any payment in respect of the related Securities, as specified in the
applicable Prospectus Supplement.
The Servicing Fee will compensate the Master Servicer for performing the
functions of a third-party servicer of student loans as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of borrowers on the Student Loans, investigating delinquencies,
pursuing, filing and directing the payment of any Guarantee Payments, Interest
Subsidy Payments or Special Allowance Payments, accounting for collections and
furnishing periodic accounting reports to the Administrator with respect to
distributions.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of
principal and interest on each class of such Securities entitled thereto will
be made by the applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Distribution Date, collections on the
related Student Loans will be distributed from the Collection Account to
Noteholders and Certificateholders to the extent provided in the related
Prospectus Supplement. Credit and cash flow enhancement, such as a Reserve
Account, will be available to cover any shortfalls in the amount available for
distribution on such date to the extent specified in the related Prospectus
Supplement. As more fully described in the related Prospectus Supplement, and
unless otherwise specified therein, distributions in respect of principal of a
class of Securities of a given series will be subordinate to distributions in
respect of interest on such class, and distributions in respect of the
Certificates of such series may be subordinate to distributions in respect of
the Notes of such series.
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CREDIT AND CASH FLOW ENHANCEMENT
General. The amounts and types of credit enhancement arrangements and the
provider thereof, if applicable, with respect to each class of Securities of a
given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit
enhancement may be in the form of subordination of one or more classes of
Securities, Reserve Accounts, over-collateralization, letters of credit,
credit or liquidity facilities, surety bonds, guaranteed investment contracts,
repurchase obligations, other agreements with respect to third-party payments
or other support, cash deposits or such other arrangements as may be described
in the related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit enhancement for a series of
Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the
full amount of principal and interest due thereon and to decrease the
likelihood that such Securityholders will experience losses. Unless otherwise
specified in the related Prospectus Supplement, the credit enhancement for a
class or series of Securities will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance and
interest thereon. If losses occur which exceed the amount covered by any
credit enhancement or which are not covered by any credit enhancement,
Securityholders of any class or series will bear their allocable share of
deficiencies, as described in the related Prospectus Supplement. In addition,
if a form of credit enhancement covers more than one series of Securities,
Securityholders of any such series will be subject to the risk that such
credit enhancement will be exhausted by the claims of Securityholders of other
series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Loan Sale Agreement, the Seller will establish for a
series or class of Securities an account, as specified in the related
Prospectus Supplement (the "Reserve Account"), which will be maintained in the
name of the applicable Indenture Trustee. Unless otherwise provided in the
related Prospectus Supplement, the Reserve Account will be funded by an
initial deposit by the Seller on the Closing Date in the amount set forth in
the related Prospectus Supplement. As further described in the related
Prospectus Supplement, the amount on deposit in the Reserve Account will be
increased on each Distribution Date thereafter up to the Specified Reserve
Account Balance (as defined in the related Prospectus Supplement) by the
deposit therein of the amount of collections on the related Student Loans
remaining on each such Distribution Date after the payment of all other
required payments and distributions on such date. Amounts in the Reserve
Account will be available to cover shortfalls in amounts due to the holders of
those classes of Securities specified in the related Prospectus Supplement in
the manner and under the circumstances specified therein. The related
Prospectus Supplement will also specify to whom and the manner and
circumstances under which amounts on deposit in the Reserve Account (after
giving effect to all other required distributions to be made by the applicable
Trust) in excess of the Specified Reserve Account Balance (as defined in the
related Prospectus Supplement) will be distributed.
STATEMENTS TO INDENTURE TRUSTEE AND TRUST
Prior to each Distribution Date with respect to each series of Securities,
the Administrator will prepare and provide to the related Indenture Trustee
and the related Eligible Lender Trustee as of the close of business on the
last day of the preceding Collection Period a statement, which will include
the following information (and any other information so specified in the
related Prospectus Supplement) with respect to such Distribution Date or the
preceding Collection Period as to the Notes and the Certificates of such
series, to the extent applicable:
(i) the amount of the distribution allocable to principal of each class
of the Notes and the Certificates;
(ii) the amount of the distribution allocable to interest on each class
of the Notes and the Certificates, together with the interest rates
applicable with respect thereto;
(iii) the Pool Balance as of the close of business on the last day of the
preceding Collection Period;
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(iv) the aggregate outstanding principal balance and the Note Pool Factor
of each class of the Notes, and the Certificate Balance and the Certificate
Pool Factor for each class of the Certificates as of such Distribution
Date, each after giving effect to payments allocated to principal reported
under clause (i) above;
(v) the amount of the Servicing Fee and the Administration Fee paid to
the Master Servicer and the Administrator, respectively, with respect to
such Collection Period;
(vi) the Interest Rate or Pass-Through Rate for the next period for any
class of Notes or Certificates of such series with variable or adjustable
rates;
(vii) the amount of the aggregate realized losses, if any, for such
Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the related Prospectus Supplement), if any, in each case as
applicable to each class of Securities, and the change in such amounts from
the preceding statement;
(ix) the aggregate Purchase Amounts for Student Loans, if any, that were
repurchased in such Collection Period;
(x) the balance of the Reserve Account (if any) on such Distribution
Date, after giving effect to changes therein on such Distribution Date;
(xi) for each date during the Funding Period (if any), the remaining Pre-
Funded Amount or, for each date during the Revolving Period (if any), the
amount on deposit in the Collateral Reinvestment Account; and
(xii) the principal balance and number of Student Loans conveyed to or
originated by the Trust, if any, during such Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (viii) with
respect to the Notes or the Certificates of any series will also be expressed
as a dollar amount per $1,000 of the initial principal balance of such Notes
or the initial Certificate Balance of such Certificates, as applicable.
EVIDENCE AS TO COMPLIANCE
Each Master Servicing Agreement will provide that a firm of independent
public accountants will furnish to the related Trust and Indenture Trustee
annually a statement (based on the examination of certain documents and
records and on such accounting and auditing procedures considered appropriate
under the circumstances) as to compliance by the Master Servicer during the
preceding twelve months (or, in the case of the first such certificate, the
period of not less than twelve months from the applicable Closing Date) with
all applicable standards under the Master Servicing Agreement relating to the
servicing of student loans, the Master Servicer's accounting records and
computer files with respect thereto, the Master Servicer's eligibility under
the Act and certain other matters.
Each Master Servicing Agreement will also provide for delivery to the
related Trust and Indenture Trustee, concurrently with the delivery of each
statement of compliance referred to above, of a certificate signed by an
officer of the Master Servicer stating that, to his knowledge, the Master
Servicer has fulfilled its obligations under such Master Servicing Agreement
throughout the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Closing Date) or, if there has
been a default in the fulfillment of any such obligation, describing each such
default. The Master Servicer has agreed to give the Administrator, the related
Indenture Trustee and Eligible Lender Trustee notice of certain Servicer
Defaults under such Master Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Trustee.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER
Except as described under "Assumption of Signet's Obligations" herein, each
Master Servicing Agreement will provide that the Master Servicer may not
resign from its obligations and duties as Master Servicer thereunder, except
upon determination that the Master Servicer's performance of such duties is no
longer permissible under applicable law. No such resignation will become
effective until the related Indenture Trustee or a successor servicer has
assumed the Master Servicer's servicing obligations and duties under the
Master Servicing Agreement.
Each Master Servicing Agreement will further provide that neither the Master
Servicer nor any of its directors, officers, employees or agents will be under
any liability to the related Trust or the related Noteholders or
Certificateholders for taking any action or for refraining from taking any
action pursuant to the related Master Servicing Agreement, or for errors in
judgment; provided, however, that neither the Master Servicer nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance
of the Master Servicer's duties thereunder or by reason of reckless disregard
of its obligations and duties thereunder. In addition, each Master Servicing
Agreement will provide that the Master Servicer is under no obligation to
appear in, prosecute, or defend any legal action that is not incidental to its
servicing responsibilities under such Master Servicing Agreement and that, in
its opinion, may cause it to incur any expense or liability. Each Master
Servicing Agreement will, however, provide that the Master Servicer may
undertake any reasonable action that it deems necessary or desirable in
respect of the Master Servicing Agreement and the interests of the
Securityholders.
Under the circumstances specified in each Master Servicing Agreement, any
entity into which the Master Servicer may be merged or consolidated, or any
entity resulting from any merger or consolidation to which the Master Servicer
is a party, or any entity succeeding to the business of the Master Servicer,
which corporation or other entity in each of the foregoing cases assumes the
obligations of the Master Servicer, will be the successor of the Master
Servicer under such Master Servicing Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement, a
"Servicer Default" under each Master Servicing Agreement will occur in the
event of (a) any failure by the Master Servicer to deliver to the Indenture
Trustee for deposit in any of the Trust Accounts any required payment, which
failure continues unremedied for five business days after written notice from
such Indenture Trustee or the related Eligible Lender Trustee is received by
the Master Servicer or after discovery by the Master Servicer, (b) any failure
by the Master Servicer to observe or perform in any material respect any other
covenant or agreement of the Master Servicer under the related Master
Servicing Agreement, which failure materially and adversely affects the rights
of the Noteholders or Certificateholders and which remains unremedied for 60
days after the giving of written notice of such failure (such 60-day period
may be extended by the Indenture Trustee and the Eligible Lender Trustee to
120 days), (c) any limitation, suspension or termination by the Secretary of
the Master Servicer's or any Subservicer's eligibility to service Student
Loans which materially and adversely affects its ability to service the
Student Loans in the related Trust or (d) an Insolvency Event with respect to
the Master Servicer occurs. "Insolvency Event" means, with respect to any
Person, any of the following events or actions: certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings with respect to such Person and certain actions by such Person
indicating its insolvency, reorganization pursuant to bankruptcy proceedings
or inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
Unless otherwise specified in the related Prospectus Supplement, as long as
a Servicer Default under a Master Servicing Agreement remains unremedied, the
related Indenture Trustee or holders of Notes of the related series evidencing
not less than 75% in principal amount of such then outstanding Notes may
terminate all the rights and obligations of the Master Servicer under such
Master Servicing Agreement, whereupon a successor
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servicer appointed by the related Indenture Trustee or such Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Master
Servicer under such Master Servicing Agreement, and will be entitled to
similar compensation arrangements. If, however, a conservator, receiver or
similar official has been appointed for the Master Servicer, and no Servicer
Default other than such appointment has occurred, such conservator, receiver
or official may have the power to prevent such Indenture Trustee or such
Noteholders from effecting such a transfer. In the event that such Indenture
Trustee is unwilling or unable to so act, it may appoint, or petition a court
of competent jurisdiction for the appointment of, a successor whose regular
business includes the servicing of student loans. Such Indenture Trustee may
make such arrangements for compensation to be paid, which in no event may be
greater than the servicing compensation to the Master Servicer under such
Master Servicing Agreement, unless such compensation arrangements will not
result in a downgrading of such Notes and Certificates by any Rating Agency.
In the event a Servicer Default occurs and is continuing, such Indenture
Trustee or such Noteholders, as described above, may remove the Master
Servicer, without the consent of the related Eligible Lender Trustee or any of
the Certificateholders of the related series. Moreover, only the Indenture
Trustee or the Noteholders, and not the Eligible Lender Trustee or the
Certificateholders, have the ability to remove the Master Servicer if a
Servicer Default occurs and is continuing.
WAIVER OF PAST DEFAULTS
With respect to each Trust, unless otherwise specified in the related
Prospectus Supplement, the holders of Notes evidencing at least a majority in
principal amount of the then outstanding Notes (or the holders of Certificates
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer Default which does not adversely affect the Indenture
Trustee or the Noteholders) of the related series may, on behalf of all such
Noteholders and Certificateholders, waive any default by the Master Servicer
in the performance of its obligations under the related Master Servicing
Agreement and its consequences, except a default in making any required
deposits to or payments from any of the Trust Accounts in accordance with such
Master Servicing Agreement. Therefore, such Noteholders have the ability,
except as noted above, to waive defaults by the Master Servicer which could
materially adversely affect such Certificateholders. No such waiver will
impair such Noteholders' or Certificateholders' rights with respect to
subsequent defaults.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, each of the
Transfer and Servicing Agreements may be amended by the parties thereto,
without the consent of the related Noteholders or Certificateholders, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements, of modifying
in any manner the rights of such Noteholders or Certificateholders or in
connection with a permitted specified merger or other transaction involving
the Seller, the Master Servicer or the Administrator, provided that such
action will not, in the opinion of counsel satisfactory to the related
Indenture Trustee and Eligible Lender Trustee, materially and adversely affect
the interest of any such Noteholder or Certificateholder or in the
circumstances described under the heading "Assumption of Signet's Obligations"
herein. Unless otherwise provided in the related Prospectus Supplement, each
of the Transfer and Servicing Agreements may also be amended by the Seller,
the Administrator, the Master Servicer, the related Eligible Lender Trustee
and the related Indenture Trustee, as applicable, with the consent of the
holders of Notes of the related series evidencing at least a majority in
principal amount of such then outstanding Notes and the holders of
Certificates of the related series evidencing at least a majority of the
Certificate Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of such Transfer and Servicing
Agreements or of modifying in any manner the rights of such Noteholders or
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments (including any Guarantee Payments) with respect to the
Student Loans or distributions that are required to be made for the benefit of
such Noteholders or Certificateholders or (ii) reduce the aforesaid percentage
of such Notes or Certificates which are required to consent to any such
amendment, without the consent of the holders of all such outstanding Notes
and Certificates.
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PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the Eligible Lender
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Master Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Seller, the Master
Servicer, the Administrator, the related Eligible Lender Trustee and the
related Indenture Trustee pursuant to the related Transfer and Servicing
Agreements will terminate upon the later of (i) the maturity or other
liquidation of the last related Student Loan and the disposition of any amount
received upon liquidation of any such remaining Student Loans and (ii) the
payment to the Noteholders and the Certificateholders of the related series of
all amounts required to be paid to them pursuant to such Transfer and
Servicing Agreements.
Optional Redemption. Unless otherwise provided in the related Prospectus
Supplement, in order to avoid excessive administrative expense, the Seller
will be permitted at its option to repurchase from the related Eligible Lender
Trustee, as of the end of any Collection Period immediately preceding a
Distribution Date, if the then outstanding Pool Balance is 10% or less of the
Initial Pool Balance (as defined in the related Prospectus Supplement, the
"Initial Pool Balance") plus the Pre-Funded Amount, if any, as of the Closing
Date, all remaining related Student Loans at a price equal to the aggregate
Purchase Amounts thereof as of the end of such Collection Period, which
amounts will be used to retire the related Notes and Certificates concurrently
therewith. Upon termination of a Trust, as more fully described in the related
Prospectus Supplement, all right, title and interest in the Student Loans and
other funds of such Trust, after giving effect to any final distributions to
Noteholders and Certificateholders of the related series therefrom, will be
conveyed and transferred to the Seller.
Auction of Student Loans. If so provided in the related Prospectus
Supplement, all remaining Student Loans held by a Trust will be offered for
sale by the Indenture Trustee on any Distribution Date occurring on or after a
date specified in such Prospectus Supplement. The Seller, affiliates of the
Seller and unrelated third parties may offer bids for such Student Loans. If
at least two bids are received, the Indenture Trustee will accept the highest
bid equal to or in excess of the greater of (x) the Purchase Amount of such
Student Loans as of the end of the Collection Period immediately preceding
such Distribution Date or (y) an amount that would be sufficient to (i) reduce
the outstanding principal amount of each class of Notes and Certificates then
outstanding on such Distribution Date to zero and to pay all amounts
representing accrued interest on the Notes and the Certificates and any Index
Shortfall Carryover to the extent specified in the related Prospectus
Supplement (the "Minimum Purchase Price"). If at least two bids are not
received or the highest bid is not equal to or in excess of the Minimum
Purchase Price for such Student Loans, the Indenture Trustee will not
consummate such sale. The proceeds of any such sale will be used to redeem any
outstanding Notes and to retire any outstanding Certificates on such
Distribution Date. If the sale is not consummated in accordance with the
foregoing, the Indenture Trustee may, but shall not be under any obligation
to, solicit bids to purchase such Student Loans on future Distribution Dates
upon terms similar to those described above. No assurance can be given as to
whether the Trustee will be successful in soliciting acceptable bids to
purchase the Student Loans.
ADMINISTRATION AGREEMENT
The Administrator will enter into an agreement (as amended and supplemented
from time to time, an "Administration Agreement") with each Trust and the
related Indenture Trustee pursuant to which the Administrator will agree, to
the extent provided therein, to provide the notices and to perform other
administrative obligations required by the related Indenture, the related
Trust Agreement, the related Loan Sale Agreement and the related Master
Servicing Agreement. Unless otherwise specified in the related Prospectus
Supplement with respect to any Trust, as compensation for the performance of
the Administrator's obligations under the applicable Administration Agreement
and as reimbursement for its expenses related thereto, the
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Administrator will be entitled to an administration fee as specified in the
related Prospectus Supplement (the "Administration Fee").
Except as otherwise provided in the related Prospectus Supplement, an
"Administrator Default" will occur under an Administration Agreement in the
event of (a) a failure by the Administrator to direct the Indenture Trustee to
make any required distributions from any of the Trust Accounts, which failure
continues unremedied for five business days after written notice from the
Indenture Trustee or the Eligible Lender Trustee of such failure, (b) any
failure by the Administrator to observe or perform in any material respect any
other covenant or agreement of the Administrator in the Administration
Agreement which failure materially and adversely affects the rights of the
Noteholders or Certificateholders and which remains unremedied for 60 days
after the giving of written notice of such failure, such 60-day period may be
extended by the Indenture Trustee and Eligible Lender Trustee to 120 days, or
(c) an Insolvency Event with respect to the Administrator occurs.
Unless otherwise specified in the related Prospectus Supplement, the
procedures for terminating the rights and obligations of the Administrator and
appointing a successor Administrator following the occurrence of an
Administrator Default under the Administration Agreement and for waiving
defaults by the Administrator under the Administration Agreement will be
identical to those for replacing the Master Servicer and appointing a
successor Master Servicer following the occurrence of a Servicer Default under
the Master Servicing Agreement and for waiving defaults by the Master Servicer
under the Master Servicing Agreement, except that such procedures will apply
to the Administrator and the Administration Agreement rather than the Master
Servicer and the Master Servicing Agreement.
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
TRANSFER OF STUDENT LOANS
The Seller intends that the transfer of the Student Loans by it to the
related Eligible Lender Trustee on behalf of each Trust will constitute a
valid sale and assignment of such Student Loans. Notwithstanding the
foregoing, if the transfer of the Student Loans is deemed to be an assignment
of collateral as security for the benefit of a Trust, a security interest in
the Federal Student Loans created on behalf of the Eligible Lender Trustee
may, pursuant to the provisions of 20 U.S.C. (S)1087-2(d)(3), be perfected
either through the taking of possession of such loans or the filing of notice
of such security interest in the manner provided by the applicable state law
version Uniform Commercial Code ("UCC") for perfection of security interests
in accounts. A financing statement or statements covering the Student Loans
will be filed under the UCC to protect the interest of the Eligible Lender
Trustee in the event the transfer by the Seller is deemed to be subject to the
UCC.
If the transfer of the Student Loans is deemed to be an assignment as
security for the benefit of a Trust, there are certain limited circumstances
under the UCC in which prior or subsequent transferees of Student Loans coming
into existence after the Closing Date could have an interest in such Student
Loans with priority over the related Eligible Lender Trustee's interest. A tax
or other government lien on property of the Seller arising prior to the time a
Student Loan comes into existence may also have priority over the interest of
the related Eligible Lender Trustee in such Student Loan. Under the related
Loan Sale Agreement, however, the Seller will warrant that it has caused the
Student Loans to be transferred to the related Eligible Lender Trustee on
behalf of a Trust free and clear of the lien of any third-party. In addition,
the Seller will covenant that it will not sell, pledge, assign, transfer or
grant any lien on any Student Loan (or any interest therein) other than to the
related Eligible Lender Trustee on behalf of a Trust, except as provided
below.
Pursuant to each Master Servicing Agreement, the Master Servicer as
custodian on behalf of the related Trust will have custody of the promissory
notes evidencing the Student Loans following the sale of the Student Loans to
the related Eligible Lender Trustee. Although the accounts and computer
records of the Seller and Master Servicer will be marked to indicate the sale
and although the Seller will cause UCC financing statements to be filed with
the appropriate authorities, the Student Loans will not be physically
segregated, stamped or
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otherwise marked to indicate that such Student Loans have been sold to such
Eligible Lender Trustee. If, through inadvertence or otherwise, any of the
Student Loans were sold to another party, or a security interest therein were
granted to another party, that purchased (or took such security interest in)
any of such Student Loans in the ordinary course of its business and took
possession of such Student Loans, then the purchaser (or secured party) might
acquire an interest in the Student Loans superior to the interest of the
Eligible Lender Trustee if the purchaser (or secured party) acquired (or took
a security interest in) the Student Loans for new value and without actual
knowledge of the related Eligible Lender Trustee's interest. See "Description
of the Transfer and Servicing Agreements--Sale of Student Loans;
Representations and Warranties".
With respect to each Trust, in the event of a Servicer Default resulting
solely from certain events of insolvency or bankruptcy that may occur with
respect to the Seller or the Master Servicer, a court, conservator, receiver
or liquidator may have the power to prevent either the related Indenture
Trustee or Noteholders of the related series from appointing a successor
Servicer. See "Description of the Transfer and Servicing Agreements--Rights
Upon Servicer Default".
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Seller will warrant to each Trust in the related Loan Sale Agreement
that the sale of the Student Loans to such Trust is a valid sale of the
Student Loans by the Seller to such Trust. Notwithstanding the foregoing, in
the event of an insolvency of the Seller, it is possible that a conservator or
receiver for, or a creditor of, the Seller may argue that each transaction
between the Seller and a Trust was a pledge of the related Student Loans in
connection with a borrowing by the Seller rather than a true sale. Such an
attempt, even if unsuccessful, could result in delays in distributions on the
Securities.
The Seller is chartered under the laws of Virginia. In Virginia, the SCC
which supervises and examines the Seller, may apply to any Virginia court
having jurisdiction over the appointment of receivers to appoint a receiver
upon determination that certain events relating to the Seller's financial
condition have occurred. The SCC is authorized, but not required, to apply for
the appointment of the FDIC as receiver and, as a matter of federal law, the
FDIC would be authorized, but not obligated, to accept such appointment. The
SCC has informally indicated that it would seek to have the FDIC appointed as
receiver in any receivership proceeding involving a bank such as the Seller.
Virginia law sets forth certain powers that could be exercised by the FDIC
upon its appointment as receiver. There are no Virginia statutory provisions
governing the appointment of a conservator for a Virginia-chartered bank.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") significantly expanded the powers of the FDIC as a conservator or
receiver of insolvent banks. To the extent that the Seller has granted a first
priority perfected security interest in the Student Loans to each Trust, and
the interest is validly perfected and was not taken in contemplation of
insolvency or with the intent to hinder, delay or defraud the Seller's
creditors, that security interest should not be subject to avoidance by the
FDIC as conservator or receiver of the Seller. If, however, the FDIC were to
take a contrary position, such as by requiring the Indenture Trustee or
Eligible Lender Trustee with respect to each Trust to establish its rights in
the related Student Loans by submitting to and complying with the
administrative claims procedure established under FIRREA, delays in payments
on the Securities and possible reductions in the amounts of those payments
could occur. In addition, under FIRREA, the FDIC may disaffirm or repudiate
any contract to which an insolvent bank is a party, the performance of which
is determined to be burdensome, and the disaffirmance of which is determined
to promote the orderly administration of such bank's affairs. If the FDIC were
to contend successfully that the Securities of any series evidence a secured
borrowing and that it has the power to repudiate such Securities, the effect
of such repudiation should be to accelerate the maturities of such Securities.
In the event of such acceleration, the amount paid on such Securities would
depend, among other things, on the amount which could be realized from the
sale or other disposition of the related Student Loans at such time. Although
each Master Servicing Agreement will provide for the replacement of the Seller
as Master Servicer in the event of the appointment of a conservator or
receiver of the Seller, the FDIC as conservator or receiver may enforce most
types of contracts, including a
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Master Servicing Agreement, pursuant to their terms, notwithstanding any such
provision. The FDIC, as conservator or receiver, may also transfer to a new
obligor an insolvent bank's assets and liabilities (including, in the event
that the Securities of any series were deemed to evidence a secured borrowing,
the related Student Loans and the liability evidenced by such Securities)
without the approval of the bank's creditors (including, in the event such
Securities were deemed to evidence a secured borrowing, holders of such
Securities).
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in
consumer finance. Also, some state laws impose finance charge ceilings and
other restrictions on certain consumer transactions and require contract
disclosures in addition to those required under federal law. These
requirements impose specific statutory liabilities upon lenders who fail to
comply with their provisions. In certain circumstances, a Trust may be liable
for certain violations of consumer protection laws that apply to the Student
Loans, either as assignee or as the party directly responsible for obligations
arising after the transfer. For a discussion of a Trust's rights if the
Student Loans were not originated or serviced in compliance in all material
respects with applicable laws, see "Description of the Transfer and Servicing
Agreements--Sale of Student Loans; Representations and Warranties" and "--
Servicer Covenants".
LOAN ORIGINATION AND SERVICING PROCEDURES APPLICABLE TO STUDENT LOANS
The Act, including the implementing regulations thereunder (in the case of
Federal Student Loans) and the private guarantee programs (in the case of
Private Student Loans) impose specified requirements, guidelines and
procedures with respect to originating and servicing student loans such as the
Student Loans. Generally, those procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower under applicable standards (including a review of a
financial need analysis in the case of Federal Student Loans and the
performance of a creditworthiness evaluation in the case of Private Student
Loans) be made, the borrower's responsibilities under the loan be explained to
him or her, the promissory note evidencing the loan be executed by the
borrower and then that the loan proceeds be disbursed in a specified manner by
the lender. After the loan is made, the lender must establish repayment terms
with the borrower, properly administer deferrals and forbearance and credit
the borrower for payments made thereon. If a borrower becomes delinquent in
repaying a loan, a lender or a servicing agent must perform certain collection
procedures (primarily telephone calls and demand letters) which vary depending
upon the length of time a loan is delinquent. The Master Servicer has agreed
pursuant to the related Master Servicing Agreement to perform collection and
servicing procedures on behalf of the related Trust. However, failure to
follow these procedures or failure of the originator of the loan to follow
procedures relating to the origination of any Federal Student Loans could
result in adverse consequences. In the case of the Federal Student Loans, any
such failure could result in the Department's refusal to make reinsurance
payments to the Federal Guarantors or to make Interest Subsidy Payments and
Special Allowance Payments to the Eligible Lender Trustee with respect to such
Federal Student Loans or in the Federal Guarantors' refusal to honor their
Guarantee Agreements with the Eligible Lender Trustee with respect to such
Federal Student Loans. Failure of the Federal Guarantors to receive
reinsurance payments from the Department could adversely affect the Federal
Guarantors' ability or legal obligation to make Guarantee Payments to the
related Eligible Lender Trustee with respect to such Federal Student Loans. In
the case of the Private Student Loans, failure to make or service properly
such Private Student Loans in accordance with such procedures could adversely
affect the related Eligible Lender Trustee's ability to obtain Guarantee
Payments from the Private Guarantors.
Loss of any such Guarantee Payments, Interest Subsidy Payments or Special
Allowance Payments could adversely affect the amount of Available Funds on any
Distribution Date and the related Trust's ability to pay principal and
interest on the Notes of the related series and to make distributions in
respect of the Certificates of the related series. Under certain
circumstances, the related Trust has the right, pursuant to the related Loan
Sale Agreement and Master Servicing Agreement, to cause the Seller to
repurchase any Student Loan, or to cause the Master Servicer to arrange for
the purchase of any Student Loan, if a breach of the representations,
warranties or
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covenants of the Seller or the Servicer, as the case may be, with respect to
such Student Loan has a material adverse effect on the interest of the Trust
therein and such breach is not cured within any applicable cure period. See
"Description of the Transfer and Servicing Agreements--Sale of Student Loans;
Representations and Warranties" and "--Servicer Covenants". The failure of the
Seller to so repurchase, or of the Servicer to purchase, a Student Loan would
constitute a breach of the related Loan Sale Agreement and Master Servicing
Agreement, enforceable by the related Eligible Lender Trustee on behalf of the
related Trust or by the related Indenture Trustee on behalf of the Noteholders
of the related series, but would not constitute an Event of Default under the
Indenture.
STUDENT LOANS GENERALLY NOT SUBJECT TO DISCHARGE IN BANKRUPTCY
Student Loans are generally not dischargeable by a borrower in bankruptcy
pursuant to the U.S. Bankruptcy Code, unless (a) such Student Loan first
became due before seven years (exclusive of any applicable suspension of the
repayment period) before the date of the bankruptcy or (b) excepting such debt
from discharge will impose an undue hardship on the debtor and the debtor's
dependents.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of federal income tax consequences of the
purchase, ownership and disposition of the Notes and the Certificates. The
summary does not purport to deal with federal income tax consequences
applicable to all categories of holders, some of which may be subject to
special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS") rulings on similar transactions involving
both debt and equity interests issued by a trust with terms similar to those
of the Notes and the Certificates. As a result, the IRS may disagree with all
or a part of the discussion below. Prospective investors are urged to consult
their own tax advisors in determining the federal, state, local, foreign and
any other tax consequences to them of the purchase, ownership and disposition
of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. In addition to the
specific opinions referred to under "Tax Characterization of the Trust" and
"Tax Consequences to Holders of the Notes--Treatment of the Notes as
Indebtedness" below, each Trust will be provided with an opinion of Tax
Counsel stating that the discussion herein under "Federal Income Tax
Consequences" is correct in all material respects. Each Trust will cause such
opinions to be filed on Form 8-K with the Commission pursuant to the Exchange
Act prior to the issuance of securities by such Trust. An opinion of Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any of
the issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless
otherwise specified herein, to each Trust and the Notes, Certificates and
related terms, parties and documents applicable to such Trust.
TAX CHARACTERIZATION OF THE TRUST
Tax Counsel will deliver its opinion that each Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the related Trust Agreement and related documents will be
complied with, and on counsel's conclusions that (1) such Trust will not have
certain characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of such
Trust will exempt it from the rule that certain publicly traded partnerships
are taxable as corporations.
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If a Trust were taxable as a corporation for federal income tax purposes,
such Trust would be subject to corporate income tax on its taxable income.
Such Trust's taxable income would include all of its income on the Student
Loans, and would be reduced by its expenses, including the interest expense on
the Notes. Any such corporate income tax could materially reduce cash
available to make payments on the Notes and distributions on the Certificates,
and Certificateholders could be liable for any such tax that is unpaid by such
Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Seller and the Company will
agree, and the Noteholders will agree by their purchase of Notes, to treat the
Notes as debt for federal, state and local income and franchise tax purposes.
Tax Counsel will, except as otherwise provided in the related Prospectus
Supplement, deliver an opinion to the Trust that the Notes will be classified
as debt for federal income tax purposes. The discussion below assumes this
characterization of the Notes is correct.
Original Issue Discount. The discussion below assumes that all payments on
the Notes are denominated in U.S. dollars, that the interest formula for the
Notes meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID Regulations") relating to original issue discount
("OID"), and that any OID on the Notes (i.e., any excess of the stated
redemption price at maturity of the Notes, generally the principal amount of
the Notes, over their issue price) does not exceed a de minimis amount (i.e.,
1/4% of their principal amount multiplied by the number of full years included
in their term), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes,
additional tax considerations with respect to such Notes will be disclosed in
the related Prospectus Supplement. The OID Regulations do not address their
application to debt instruments such as the Notes that are subject to
prepayment based on the prepayment of other debt instruments. The legislative
history of the OID provisions of the Code provides, however, that the
calculation and accrual of OID should be based on the prepayment assumption
used by the parties in pricing the transaction. In the event that any of the
Notes are issued with OID, the prepayment assumption will be set forth in the
related Prospectus Supplement. Furthermore, although premium amortization and
accrued market discount on debt instruments such as the Notes, which are
subject to prepayment based on the payments on other debt instruments, is to
be determined under regulations yet to be issued, the legislative history of
these Code provisions provides that the same prepayment assumption used to
calculate OID, whether or not the debt instrument is issued with OID, should
be used. The OID Regulations are effective for debt instruments, such as the
Notes, issued on or after April 4, 1994.
Interest Income on the Notes. Based on the above assumptions, except as
discussed below or in the related Prospectus Supplement the Notes will not be
considered issued with OID. The stated interest thereon will be taxable to a
Noteholder as ordinary interest income when received or accrued in accordance
with such Noteholder's method of tax accounting. Under the OID Regulations, a
holder of a Note that was issued with a de minimis amount of OID must include
such OID in income, on a pro rata basis, as principal payments are made on the
Note. Alternatively, a Noteholder may elect to accrue all interest and
discount (including de minimis market discount or OID), as adjusted by any
premium, in income as interest, based on a constant yield method. If such an
election were made with respect to a Note with market discount, the Noteholder
would be deemed to have made an election to include in income currently market
discount with respect to all debt instruments having market discount that such
Noteholder acquires during the year of the election and thereafter. Similarly,
a Noteholder that makes this election for a Note that is acquired at a premium
will be deemed to have made an election to amortize bond premium with respect
to all debt instruments having amortizable bond premium that such Noteholder
owns or acquires. The election to accrue interest, discount and premium under
a constant yield method with respect to a Note is irrevocable without the
consent of the IRS. A purchaser who buys a Note for more or less than its
principal amount generally will be subject, respectively, to the premium
amortization or market discount rules of the Code.
"Qualified Stated Interest", which is taxable in accordance with the
holder's method of accounting, is interest that is unconditionally payable
(i.e., late payments are penalized) at least annually at a single fixed rate.
The Company intends to treat the interest paid on the Notes as Qualified
Stated Interest.
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A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, banks and securities
dealers, as set forth in Section 1281 of the Code) generally will be required
to report interest income as interest accrues on a ratable basis over the term
of each interest period or, at the election of the holder, on a constant yield
basis (i.e., treating the instrument as accruing interest at a single rate).
Cash basis holders of a Short-Term Note will, in general, be required to
report interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a Short-
Term Note reporting interest income as it is paid may be required to defer a
portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1282 of the
Code to accrue interest income on all nongovernment debt obligations with a
term of one year or less, in which case the taxpayer would include interest on
the Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than
its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously
received by such Noteholder with respect to such Note. Any such gain or loss
will be capital gain or loss if the Note was held as a capital asset, except
for gain representing accrued interest and accrued market discount not
previously included in income. Capital losses generally may be used only to
offset capital gains.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is for
United States federal income tax purposes a nonresident alien, foreign
corporation, foreign estate or trust, foreign partnership or other non-United
States person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal income
tax and withholding tax, provided, that (i) the interest is not effectively
connected with the conduct of a trade or business within the United States by
the foreign person, (ii) the foreign person is neither actually or
constructively a "10 percent shareholder" of the Trust, the Seller or the
Company (including a holder of 10% of the outstanding Certificates) nor a
"controlled foreign corporation" with respect to which the Trust, the Seller
or the Company is a "related person" within the meaning of the Code and (iii)
the foreign person provides the Trustee or other person who is otherwise
required to withhold U.S. tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a foreign person and
providing the foreign person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person
that owns the Note. If such interest is not portfolio interest, then it will
be subject to United States federal income and withholding tax at a rate of
30%, unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person generally will be exempt
from United States federal income and withholding tax, provided that (i) such
gain is not effectively connected with the conduct of a trade or business in
the United States by the foreign person and (ii) in the case of an individual
foreign person, the foreign person is not present in the United States for 183
days or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition,
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if the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
Backup Withholding. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-
sharing trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide,
under penalties of perjury, a certificate setting forth the holder's name,
address, correct federal taxpayer identification number and a statement that
the holder is not subject to backup withholding. Should a nonexempt Noteholder
fail to provide the required certification, the Trust will be required to
withhold 31% of the amount otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income tax
liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion of
Tax Counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes would be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as
a corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of Tax Counsel, the Trust would be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to foreign holders might
be subject to U.S. tax and U.S. tax return filing and withholding
requirements, and individual holders might be subject to certain limitations
on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, that a series of Securities includes a single
class of Certificates and that any such Certificates are sold to persons other
than the Seller. If these conditions are not satisfied with respect to any
given series of Certificates, any additional tax considerations with respect
to such Certificates will be disclosed in the applicable Prospectus
Supplement.
Treatment of the Trust as a Partnership. The Seller, the Company and the
Master Servicer will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust as a partnership for purposes of
federal, state and local income tax, franchise tax and any other tax measured
in whole or in part by income, with the assets of the partnership being the
assets held by the Trust, the partners of the partnership being the
Certificateholders (including the Seller and the Company in their capacity as
recipients of distributions from the Reserve Account, if any), and the Notes
being debt of the partnership. However, the proper characterization of the
arrangement involving the Trust, the Certificateholders, the Noteholders, the
Seller, the Company and the Master Servicer is not clear because there is no
authority on transactions comparable to that contemplated herein.
Under the provisions of Subchapter K of the Code, a partnership is not
considered to be a separate taxable entity. Instead, partnership income is
taxed directly to the partners and each partner generally is viewed as owning
a direct undivided interest in each partnership asset. The partnership
generally is treated as an entity, however, for purposes of computing
partnership income, determining the tax consequences of transactions between a
partner and the partnership, and characterizing the gain on the sale or
exchange of a partnership interest. The following discussion is a summary of
some of the material federal income tax consequences of classifying the Trust
as a partnership. Prospective owners of Certificates should consult their own
tax advisors regarding the federal income tax consequences discussed below, as
well as any other material federal income tax consequences that may result
from applying the provisions of Subchapter K to the ownership and transfer of
a Trust Certificate.
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Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Student Loans
(including appropriate adjustments for market discount, OID and bond premium),
investment income from investments of amounts on deposit in any related Trust
Accounts and any gain upon collection or disposition of Student Loans. The
Trust's deductions will consist primarily of interest accruing with respect to
the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Student Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each Interest Period (as defined in the applicable Prospectus
Supplement, an "Interest Period") equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such Interest
Period, including interest accruing at the Pass-Through Rate for such Interest
Period and interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust income attributable to discount on the Student
Loans that corresponds to any excess of the principal amount of the
Certificates over their initial issue price; and (iii) all other amounts of
income payable to the Certificateholders for such Interest Period. All
remaining taxable income of the Trust will be allocated between the Seller and
the Company. Based on the economic arrangement of the parties, this approach
for allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require
a greater amount of income to be allocated to Certificateholders. Moreover,
even under the foregoing method of allocation, Certificateholders may be
allocated income equal to the entire amount of interest accruing on the
Certificates for an Interest Period, based on the Pass-Through Rate plus the
other items described above, even though the Trust might not have sufficient
cash to make current cash distributions of such amount. Thus, cash basis
holders will in effect be required to report income from the Certificates on
the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes.
In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the Trust.
An individual taxpayer's share of expenses of the Trust (including fees to
the Master Servicer but not interest expenses) are miscellaneous itemized
deductions which generally are deductible to the extent they exceed two
percent of the individual's adjusted gross income. However, an individual
taxpayer may be required to reduce his or her itemized deductions further if
such taxpayer's income exceeds certain annual levels. Accordingly, such
deductions might be disallowed to the individual in whole or in part and might
result in such holder being taxed on an amount of income that exceeds the
amount of cash actually distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each of the Student
Loans, the Trust might be required to incur additional expense but it is
believed that there would not be a material adverse effect on
Certificateholders.
Computation of Income. Taxable income of the Trust will be computed at the
Trust level and then allocated pro rata to the Certificateholders.
Consequently, the method of accounting for taxable income will be chosen by,
and any elections (such as those described above with respect to the market
discount rules) will be made by, the Trust rather than the Certificateholders.
The Trust intends, to the extent possible, to (i) have the taxable income of
the Trust computed under the accrual method of accounting and (ii) adopt a
calendar-year taxable year for computing the taxable income of the Trust. The
tax year of the Trust, however, is generally determined by reference to the
tax years of the Certificateholders. As a result, an owner of a Certificate
would be required to include its pro rata share of Trust income for a taxable
year as determined by the Trust in such Certificateholder's gross income for
its taxable year in which the taxable year of the Trust ends.
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Determining the Bases of Trust Assets. The Trust will become a partnership
on the first date when Trust Certificates are held by more than one person. On
that date, each of the Certificateholders should be treated as having
purchased a pro rata share of the assets of the Trust (subject to the
liability for the Notes) followed immediately by a deemed contribution of such
assets to the newly formed partnership. The partnership's basis in the Trust's
assets would therefore equal the sum of the Certificateholders' bases in their
respective interests in the Trust's assets immediately prior to the deemed
contribution to the partnership. To the extent that the fair market value of
the assets deemed contributed to the partnership varied from the bases of such
assets to the partnership, the allocation of taxable income to the
Certificateholders would be adjusted in accordance with Code Section 704(c) to
account for such variations.
Under Code Section 708 a partnership is considered to terminate if 50% or
more of the partnership interests are sold or exchanged within a 12-month
period. If such a termination occurs, the partnership is deemed to distribute
its assets to its partners who are then deemed to recontribute those assets to
a new partnership. The new partnership would have a basis in those assets
equal to the basis of the contributing partners in their partnership
interests. If the Trust were characterized as a partnership and a sale of
Certificates terminated the partnership under Code Section 708, the
purchaser's basis in its ownership interest would automatically be reflected
in its pro rata portion of the Trust's assets.
Discount and Premium. To the extent that OID, if any, on the Student Loans
exceeds a de minimis amount, the Trust would have OID income. As indicated
above, a portion of such OID income may be allocated to the
Certificateholders.
Moreover, the purchase price paid by the Trust for the Student Loans may be
greater or less than the remaining principal balance of the Student Loans at
the time of purchase. If so, the Student Loans will have been acquired at a
premium or discount, as the case may be. (As indicated above, the Trust will
make this calculation on an aggregate basis, but might be required to
recompute it on a loan by loan basis.)
If the Trust acquires the Student Loans at a market discount or premium, the
Trust will elect to include any such discount in income currently as it
accrues over the life of the Student Loans or to offset any such premium
against interest income on the Student Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. To the extent that the Trust is characterized as a partnership, a
Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (net of
deductions) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificate and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a pro rata portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Student Loans generally would be
treated as ordinary income to the holder and could give rise to special tax
reporting requirements. The Trust does not expect to have any other assets
that would give rise to such special reporting requirements.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
66
<PAGE>
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect the tax liability
and tax basis of the holder) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing laws
and regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificateholders. The
Seller and the Company are authorized to revise the Trust's method of
allocation between transferors and transferees to conform to a method
permitted by future laws, regulations or other IRS guidance.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit (or loss), the purchasing Certificateholder will have
a higher (or lower) basis in the Certificate than the selling
Certificateholder had. The tax basis of the Trust's assets will not be
adjusted to reflect that higher (or lower) basis unless the Trust were to file
an election under Section 754 of the Code. In order to avoid the
administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the Trust will not make such election. As a result,
Certificateholders might be allocated a greater or lesser amount of Trust
income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Eligible Lender Trustee is required to keep or
cause to be kept complete and accurate books of the Trust. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and
the taxable year of the Trust will be the calendar year. The Eligible Lender
Trustee will file a partnership information return (IRS Form 1065) with the
IRS for each taxable year of the Trust and will report each
Certificateholder's allocable share of items of Trust income and expense to
holders and the IRS on Schedule K-l. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information returns filed
by the Trust or be subject to penalties unless the holder notifies the IRS of
all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act that holds
Certificates as a nominee is not required to furnish any such information
statement to the Trust. The information referred to above for any calendar
year must be furnished to the Trust on or before the following January 31.
Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Company will be designated as the "tax matters partner" in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed
67
<PAGE>
adjustment to the items of the Trust. An adjustment could also result in an
audit of a Certificateholder's returns and adjustments of items not related to
the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of
the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements
may require the Trust to change its withholding procedures. In determining a
holder's withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9
or the holder's certification of nonforeign status signed under penalties of
perjury.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return (including in the case of a corporation, the branch profits
tax) on its share of the Trust's income. Each foreign holder must obtain a
taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard
to the income of the Trust. If these interest payments are properly
characterized as guaranteed payments, then the interest will not be considered
"portfolio interest." As a result, Certificateholders will be subject to
United States federal income tax and withholding tax at a rate of 30 percent,
unless reduced or eliminated pursuant to an applicable treaty. In such case, a
foreign holder would only be entitled to claim a refund for that portion of
the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds from
the sale of the Certificates will be subject to a "Backup" withholding tax of
31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE
TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
STATE TAX CONSEQUENCES
The loan origination and servicing activities to be undertaken by the Master
Servicer will predominantly take place in Maryland.
Because of the variation in each state's tax laws based in whole or in part
upon income, it is impossible to predict tax consequences to holders of Notes
and Certificates in all of the state taxing jurisdictions in which they are
already subject to tax. Noteholders and Certificateholders are urged to
consult their own tax advisors with respect to state tax consequences arising
out of the purchase, ownership and disposition of Notes and Certificates.
68
<PAGE>
The State of Maryland imposes an individual income tax and a corporate
income tax. This discussion is based upon present provisions of Maryland
statutes and the regulations promulgated thereunder, and applicable judicial
or ruling authority, all of which are subject to change, which change may be
retroactive. No ruling on any of the issues discussed below will be sought
from the Maryland Department of Revenue.
TAX CONSEQUENCES WITH RESPECT TO THE NOTES
Tax Counsel will deliver an opinion to the Trust that, assuming the Notes
are treated as debt for federal income tax purposes, the Notes will be treated
as debt for Maryland individual income and corporate income tax purposes.
Accordingly, Noteholders not otherwise subject to taxation in Maryland should
not become subject to taxation in Maryland solely because of a holder's
ownership of Notes. However, a Noteholder already subject to Maryland's
individual income tax or corporate income tax could be required to pay
additional Maryland tax as a result of the holder's ownership or disposition
of Notes.
TAX CONSEQUENCES WITH RESPECT TO THE CERTIFICATES
Tax Counsel will deliver an opinion that, if the arrangement created by the
Trust Agreement is treated as a partnership, not taxable as a corporation, for
federal income tax purposes, the same treatment should also apply for Maryland
tax purposes. As a result, the partnership should not be subject to the
Maryland corporate income tax (if such taxes were applicable, however, they
could result in reduced distributions to Certificateholders). Moreover,
Certificateholders that are not otherwise subject to tax in Maryland should
not be subject to Maryland individual income or corporate income tax with
respect to income from the partnership, unless in the unlikely event the Trust
is considered to be carrying on business in Maryland.
ERISA CONSIDERATIONS
THE NOTES
Unless otherwise specified in the Prospectus Supplement, the Notes of each
series may be purchased by an employee benefit plan (as defined in Section
3(3) of ERISA) that is subject to the provisions of Title I of ERISA by a plan
described in Section 4975(e)(1) of the Code, including an individual
retirement account (a "Plan"). A fiduciary of the Plan must determine that the
purchase of a Note is consistent with its fiduciary duties under ERISA and
does not result in a nonexempt prohibited transaction as defined in Section
406 of ERISA or Section 4975 of the Code. Employee plans which are government
plans (as defined in Section 3(32) of ERISA) and certain church plans (as
defined in Section 3(33) of ERISA) are not subject to the fiduciary
responsibility or prohibited transaction provisions of ERISA or the Code.
THE CERTIFICATES
Unless otherwise specified in the Prospectus Supplement, the Certificates of
each series may not be purchased by a Plan or by any entity whose underlying
assets include plan assets by reason of a plan's investment in the entity
(each, a "Benefit Plan"). Such purchase of an equity interest in the Trust
will result in the assets of the Trust being deemed assets of a Benefit Plan
for the purposes of, ERISA and the Code, and certain transactions involving
the Trust may then be deemed to constitute prohibited transactions under
Section 406 of ERISA and Section 4975 of the Code. A violation of the
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons.
By its acceptance of a Certificate, each Certificateholder will be deemed to
have represented and warranted that it is not a Benefit Plan.
If a given series of Certificates may be acquired by a Benefit Plan because
of the application of an exception contained in a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), such
exception will be discussed in the related Prospectus Supplement.
* * *
69
<PAGE>
A plan fiduciary considering the purchase of Securities of a given series
should consult its tax and/or legal advisors regarding whether the assets of
the related Trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes of a given series and an underwriting agreement with
respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each
of such underwriters will severally agree to purchase, the principal amount of
each class of Notes and Certificates, as the case may be, of the related
series set forth therein and in the related Prospectus Supplement. The Seller
may sell directly Notes and Certificates to the extent specified in the
related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as
the case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may
be, are purchased.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to
certain dealers participating in the offering of such Notes and Certificates,
as the case may be or (ii) specify that the related Notes and Certificates, as
the case may be, are to be resold by the underwriters in negotiated
transactions at varying prices to be determined at the time of such sale.
After the initial public offering of any such Notes and Certificates, as the
case may be, such public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the Seller will indemnify the
underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each Trust may, from time to time in the ordinary course of business, but is
under no obligation to, invest the funds in its Trust Accounts in Eligible
Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
series of Securities, the closing of the sale of any class of Securities
subject to either thereof will be conditioned on the closing of the sale of
all other such classes subject to either thereof.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller, the Master Servicer and the
Administrator by McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia,
and for the underwriters for such series by the law firm specified in the
related Prospectus Supplement. Certain federal and Maryland State income and
corporate income tax and other matters will be passed upon for each Trust by
McGuire, Woods, Battle & Boothe, L.L.P.
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<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1992 Amendments............................................................ 16
1993 Act................................................................... 27
Act........................................................................ 15
Add-on Consolidation Loans................................................. 36
Additional Fundings........................................................ 49
Administration Agreement................................................... 13
Administration Fee......................................................... 58
Administrator.............................................................. 6
Administrator Default...................................................... 58
Applicable Trustee......................................................... 46
Assigned Assets............................................................ 23
Assumed Agreements......................................................... 24
Assumed Obligations........................................................ 24
Assuming Entity............................................................ 24
Base Rate.................................................................. 45
Benefit Plan............................................................... 70
Calculation Agent.......................................................... 45
Cede....................................................................... 22
Certificate Balance........................................................ 7
Certificate Pool Factor.................................................... 38
Certificates............................................................... 1
Closing Date............................................................... 7
Code....................................................................... 61
Collateral Reinvestment Account............................................ 9
Collection Account......................................................... 49
Collection Period.......................................................... 52
Commission................................................................. 2
Cutoff Date................................................................ 7
Deferral Period............................................................ 32
Definitive Certificates.................................................... 46
Definitive Notes........................................................... 46
Definitive Securities...................................................... 46
Department................................................................. 8
Depository................................................................. 39
Distribution Date.......................................................... 39
DTC's Nominee.............................................................. 23
Early Amoritization Event.................................................. 9
Eligible Deposit Account................................................... 50
Eligible Institution....................................................... 50
Eligible Investments....................................................... 49
Eligible Lender Trustee.................................................... 1
ERISA...................................................................... 14
Event of Default........................................................... 41
Exchange Act............................................................... 2
Existing Borrowers......................................................... 10
Family contribution........................................................ 30
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
FDIC..................................................................... 23, 60
Federal Assistance....................................................... 31
Federal Consolidation Loan............................................... 34
Federal Consolidation Loans.............................................. 27
Federal Direct Consolidation Loan Program................................ 19
Federal Guarantor........................................................ 8
Federal Origination Fee.................................................. 17
Federal PLUS Loans....................................................... 27
Federal SLS Loans........................................................ 27
Federal Stafford Loans................................................... 27
Federal Student Loans.................................................... 8
Federal Supplemental Loans to Students................................... 27
Federal Tax Counsel...................................................... 14
Federal Unsubsidized Stafford Loans...................................... 27
FFELP.................................................................... 15
FIRREA................................................................... 21
Fixed Rate Securities.................................................... 44
Floating Rate Securities................................................. 44
Forbearance Period....................................................... 32
foreign person........................................................... 64
Funding Period........................................................... 8
Grace Period............................................................. 33
Guarantee Agreement...................................................... 15
Guarantee Payments....................................................... 9
Guarantors............................................................... 8
Indenture................................................................ 6
Indenture Trustee........................................................ 1
Index Shortfall Carryover................................................ 42
Indirect Participants.................................................... 45
Initial Pool Balance..................................................... 5, 17
Insolvency Event......................................................... 57
Interest Rate............................................................ 6
Interest Reset Period.................................................... 46
Interest Subsidy Payments................................................ 30
Investment Earnings...................................................... 51
IRS...................................................................... 62
Issuer................................................................... 7
Loan Sale Agreement...................................................... 7
Loan Servicing Agreement................................................. 7, 12
Master Servicer.......................................................... 6
Master Servicing Agreement............................................... 6, 11
Minimum Purchase Price................................................... 56
Monthly Rebate Fee....................................................... 17
Non-Code Entity.......................................................... 17
Note Pool Factor......................................................... 38
Notes.................................................................... 1
OID...................................................................... 63
OID Regulations.......................................................... 63
Participants............................................................. 39
Pass-Through Rate........................................................ 7
Plan..................................................................... 70
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pool Balance............................................................... 40
Pool Factor................................................................ 40
Pre-Funding Account........................................................ 8
Pre-Funded Amount.......................................................... 8
Private Guarantor.......................................................... 9
Private Student Loans...................................................... 9
Prospectus Supplement...................................................... 1
Purchase Amount............................................................ 48
Qualified Stated Interest.................................................. 62
Qualified student.......................................................... 29
Rating Agency.............................................................. 49
Registration Statement..................................................... 2
Related Documents.......................................................... 44
Reserve Account............................................................ 11
Reserve Account Initial Deposit............................................ 11
Revolving Period........................................................... 9
Rules...................................................................... 4, 6
SCC........................................................................ 21
Secretary.................................................................. 22
Securities................................................................. 1
Securities Act............................................................. 2
Seller..................................................................... 1, 6
Servicer Default........................................................... 55
Servicing Fee.............................................................. 12
Short-Term Note............................................................ 62
Signet..................................................................... 1, 6
Special Allowance Payments................................................. 29
Spread..................................................................... 45
Spread Multiplier.......................................................... 46
Student Loans.............................................................. 1, 7
Subservicer................................................................ 12
Subservicing Agreement..................................................... 23
Tax Counsel................................................................ 14
Tax Opinion................................................................ 24
Transfer and Servicing Agreements.......................................... 48
Trust...................................................................... 1, 6
Trust Accounts............................................................. 48
Trust Agreement............................................................ 6
UCC........................................................................ 49
Underwriting Agreements.................................................... 70
Unmet Need................................................................. 29
</TABLE>
73
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms.......................................................... S- 3
Risk Factors.............................................................. S-21
Formation of the Trust.................................................... S-26
The Financed Student Loan Pool............................................ S-28
Description of the Securities............................................. S-39
Description of the Transfer and Servicing Agreements...................... S-45
Federal Income Tax and State Tax Consequences............................. S-55
ERISA Considerations...................................................... S-56
Underwriting.............................................................. S-57
Legal Matters............................................................. S-58
Annex I--Global Clearance, Settlement and Tax Documentation Procedures.... S-59
Index of Principal Terms.................................................. S-63
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Summary of Terms.......................................................... 6
Risk Factors.............................................................. 15
Formation of the Trusts................................................... 22
Use of Proceeds........................................................... 23
The Seller, the Master Servicer and the Subservicers...................... 23
Assumption of Signet's Obligations........................................ 23
The Student Loan Pools.................................................... 24
Federal Family Education Loan Program..................................... 26
Private Student and Other Loan Programs................................... 37
Weighted Average Life of the Securities................................... 37
Pool Factors and Trading Information...................................... 38
Description of the Notes.................................................. 38
Description of the Certificates........................................... 43
Certain Information Regarding the Securities.............................. 44
Description of the Transfer and Servicing Agreements...................... 47
Certain Legal Aspects of the Student Loans................................ 58
Federal Income Tax Consequences........................................... 61
State Tax Consequences.................................................... 68
ERISA Considerations...................................................... 69
Plan of Distribution...................................................... 70
Legal Matters............................................................. 70
Index of Principal Terms.................................................. 71
</TABLE>
------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS EF-
FECTING TRANSACTIONS IN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLE-
MENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DE-
LIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT
OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$428,435,000
Signet Student Loan Trust 1996-A
$252,000,000
Floating Rate Class A-1 Asset Backed Notes
$161,439,000
Floating Rate Class A-2 Asset Backed Notes
$14,996,000
Floating Rate Asset Backed Certificates
Signet Bank
Seller and Master Servicer
PROSPECTUS SUPPLEMENT
Credit Suisse First Boston Goldman, Sachs & Co. Signet Bank
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses in connection with the offering of the Notes and the
Certificates being registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee.....................................$200,145
Legal fees and expenses.................................. 200,000
Accounting fees and expenses............................. 25,000
Blue Sky fees and expenses............................... 15,000
Rating agency fees....................................... 330,000
Eligible Lender Trustee fees and expenses................ 9,000
Indenture Trustee fees and expenses...................... 6,500
Printing expenses........................................ 50,000
Miscellaneous............................................ 20,000
Total...............................................$855,645
</TABLE>
Item 15. Indemnification of Directors and Officers.
Article 10 of the Virginia Stock Corporation Act and the Articles of
Incorporation of Signet provide for indemnification of the Banks's directors and
officers and limitation of liability in a variety of circumstances, which may
include liability under the Securities Act of 1933. In addition, the Bank
carries insurance on behalf of directors, officers, employees or agents which
may cover liabilities under the Securities Act of 1933.
Item 16. Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement for Notes *
1.2 Form of Underwriting Agreement for Certificates *
3.1 Articles of Incorporation of Signet Bank (Incorporated
by reference from a Registration Statement on Form S-11
No. 33-97660)
3.2 Bylaws of Signet Bank (Incorporated by reference from a
Registration Statement on Form S-11 No. 33-97660)
3.3 Form of Articles of Incorporation of Signet Student
Loan Corporation (the "Company") *
3.4 Form of Bylaws of the Company *
3.5 Form of Certificate of Trust for the Trusts (included
as an exhibit to Exhibit 4.2)
4.1 Form of Indenture between the Trust and the Indenture
Trustee (included as an exhibit thereto a form of Note)
4.2 Form of Trust Agreement among the Seller, the Company
and the Eligible Lender Trustee (included as an exhibit
thereto a form of Certificate)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.3 Form of Note (included as an exhibit to Exhibit 4.1)
4.4 Form of Certificate (included as an exhibit to Exhibit 4.2)
5.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect to legality *
8.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect to tax matters*
23.1 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included as part of Exhibit 5.1 and 8.1)
24.1 Powers of Attorney *
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of the Indenture Trustee *
99.1 Form of Loan Sale Agreement among the Seller, the Trust and the Eligible Lender Trustee *
99.2 Form of Master Servicing Agreement among the Master Servicer, the Trust and the Eligible Lender
Trustee*
99.3 Form of Administration Agreement among the Trust, the Indenture Trustee and Signet Bank, as
Administrator*
</TABLE>
- -------------------------------------
* Previously filed
Item 17. Undertakings.
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the
most recent post-effective amendment hereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended, that are incorporated by reference in this Registration
Statement.
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) As to documents subsequently filed that are incorporated by
reference:
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreements Notes and
Certificates in such denominations and registered in such names are required by
the Underwriter to permit prompt delivery to each purchaser.
(d) As to indemnification:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefor unenforceable. In the event that a claim
for indemnification against such liabilities (other than payment by the
Registrant of expenses incurred or paid by a director, officer of controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, such Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement or amendment to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Richmond, State of Virginia, on December 16, 1996.
SIGNET BANK, as
originator of the Trust (Registrant)
By: /s/ Wallace B. Millner, III
-------------------------------------------
Wallace B. Millner, III
Vice Chairman and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed below on December 16, 1996,
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Robert M. Freeman * Chairman of the Board
- ------------------------------------
Robert M. Freeman
/s/ Malcolm S. McDonald * President, Chief Executive Officer
- ------------------------------------ (Principal Executive Officer) and
Malcolm S. McDonald Director
/s/ Wallace B. Millner, III Vice Chairman and Chief
- ------------------------------------ Financial Officer (Principal
Wallace B. Millner, III Financial Officer)
/s/ T. Gaylon Layfield, III * Vice Chairman, Chief Operating
- ------------------------------------ Officer and Director
T. Gaylon Layfield, III
/s/ W. H. Catlett, Jr. * Executive Vice President and
- ------------------------------------ Controller (Principal Accounting
W. H. Catlett, Jr. Officer)
/s/ J. Henry Butta * Director
- ------------------------------------
J. Henry Butta
/s/ Norwood H. Davis, Jr. * Director
- ------------------------------------
Norwood H. Davis, Jr.
/s/ William C. DeRusha * Director
- ------------------------------------
William C. DeRusha
/s/ C. Stephenson Gillispie, Jr. * Director
- ------------------------------------
C. Stephenson Gillispie, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
/s/ Bruce C. Gottwald * Director
- ------------------------------------
Bruce C. Gottwald
* Director
- ------------------------------------
William R. Harvey
/s/ Elizabeth G. Helm * Director
- ------------------------------------
Elizabeth G. Helm
/s/ Robert M. Heyssel * Director
- ------------------------------------
Robert M. Heyssel
/s/ Henry A. Rosenberg, Jr. * Director
- ------------------------------------
Henry A. Rosenberg, Jr.
/s/ Louis B. Thalheimer * Director
- ------------------------------------
Louis B. Thalheimer
</TABLE>
* By: /s/ Wallace B. Millner, III
----------------------------
Wallace B. Millner, III
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement for Notes **
1.2 Form of Underwriting Agreement for Certificates **
3.1 Articles of Incorporation of Signet Bank *
3.2 Bylaws of Signet Bank *
3.3 Form of Articles of Incorporation of Signet Student Loan Corporation
(the "Company") **
3.4 Bylaws of the Company **
3.5 Form of Certificate of Trust for the Trusts (included
as an exhibit to Exhibit 4.2)
4.1 Form of Indenture between the Trust and the Indenture
Trustee (included as an exhibit thereto a form of Note)
4.2 Form of Trust Agreement among the Seller, Signet and the Eligible Lender
Trustee (included as an exhibit thereto a form of Certificate)
4.3 Form of Note (included as an exhibit to Exhibit 4.1)
4.4 Form of Certificate (included as an exhibit to Exhibit 4.2)
5.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect **
to legality
8.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect **
to tax matters
23.1 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included as
part of Exhibit 5.1 and 8.1)
24.1 Powers of Attorney **
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of
the Indenture Trustee **
99.1 Form of Loan Sale Agreement among the Seller, the Trust and the Eligible
Lender Trustee **
99.2 Form of Master Servicing Agreement among the Master Servicer, the Trust and
the Eligible Lender Trustee **
99.3 Form of Administration Agreement among the Trust, the Indenture Trustee
and Signet Bank, as Administrator **
</TABLE>
- ---------------------
* Incorportate by reference from a Registration Statement on Form S-11
(No. 33-97660)
** Previously filed
